A car loan is a personal loan used to purchase a used or new car and repaid over a fixed period of between one to seven years. When you’re seeking a car loan, it is necessary to look for the best you can get because this will save you a lot on cost and interests.
The first thing you should do once you realize you want a car is to look for loans and compare before even going to the car dealer. By doing this, you will have a better understanding of interests and repayment. It will also give you an idea of how much you will spend on cars so that you can negotiate better with the dealership.
You also need to determine whether the loan has a variable or fixed interest rate. A variable rate is one where the interest rate changes with the repayment. Thus, if repayment is higher, the interest rate too would be. And when the repayment is lower, so would the interest rate. This type of interest rate doesn’t have early exit fees which means you can make extra repayment and pay the loan back before term without incurring any fee.
On the other hand, the repayment and interest rate are fixed. This means you know how much you’ll pay for each month. Usually, Car dealerships provide loans with a fixed term.
Furthermore, you have to consider whether you are getting a secured or unsecured loan. For a secured loan there’s collateral which is usually the car, and when you default, the lender can repossess the vehicle. An unsecured loan, on the other hand, does not have any collateral but you might have to pay higher interest on the loan. Secured loans are more common for cars, and the unsecured loan is reserved for used cars most of the time.
You should also be wary of balloon payment which is an option that allows you to pay small repayments and then the final repayment is paid as a lump sum. While it looks like a great deal, the fact that the lump sum has to be paid with interest means the total loan cost is higher. Also, the lump sum with interest might be difficult to pay at once leading you to have to take another loan to settle it.
When comparing car loans, what you consider is the application fee, interest rate, other feeds, loan term, extra repayment, loan conditions, and the comparison rate which covers all fees, rates, and charges related to the loan. You can always use a comparison website to compare the lenders but don’t forget they are businesses too, and the basis of their comparison may be unclear at times. It may not cover every feature or product that the lender offers.
You must also consider all the cost attached to owning a car and how you’ll pay for them. Such cost could include stamp duty, car insurance, registration, and running cost. While some lenders offer loans that also cover these cost, better to reduce how much you’re borrowing and do it yourself.