A car loan is basically a personal loan that people use to buy a motor vehicle like a car, ute, motorbike or other automobiles. Getting one can be quite useful especially when you don’t have enough money to afford to pay for its entire price at once. A car loan lets you repay it in monthly instalments instead. This may sound like common knowledge but we can tell you that the questions we see about what car finance includes we thought it might be easier to explain it here.
But before you start to search for a car that you like, it’s important that you work out how much you can afford first, lucky we have a useful loan calculator found here. Your calculations should include all of the costs with regards to owning and operating the vehicle. Things such as annual registration fees, roadside assistance, insurance, maintenance, repairs and tolls should be considered.
Focus on how much you can afford and stay with that. Your dealer might offer you accessories for the car and additional insurance but these can only add to your budget. Perhaps a good second-hand car might be better for you as it lets you save money while leaving you with more cash on hand to get things like insurance.
Selecting a Car Loan
With a car loan, your purpose here is to borrow a certain amount of money which you repay in a specific period. This is what we call a ‘term’. You will be required to sign a credit contract which details the total amount that you owe and how you plan to repay it.
The term will depend on what you choose but this can often last between 12 months up to 5 years. If you’re unable to pay the full amount when the term ends, or if you somehow can’t make equal payments over the life of your loan, the last payment must be done as a lump sum. Although this can make repayments easier, you may end up having to pay a huge amount of money to pay off.
There are various types of car loans you can get right now. These are:
Secured Loan
A secure loan works by offering an asset in return which will work as a security for the loan. Commonly, the asset that is secured is the one that the person plans to buy. If you fail to repay accordingly, the lender can repossess the asset and sell it to get their money back.
Unsecured Loan
This type of loan is often employed for used cars. An asset won’t be needed as collateral but the downside here is that you won’t be able to borrow as much compared to a secured loan. Besides that, interest rates with this loan are usually higher since the lender is risking more. Failing to repay the loan can land you in court instead.
Fixed and Variable Rate Loans
While shopping around for a car loan, you may notice that there’s an option for a fixed or variable rate loan. With regards to a fixed-rate loan, its interest is locked down for the term of the loan. What this means is that repayments here are set, letting you know how much you need to repay every month.
Keep in mind however that if you make extra payments inconsistently and pay out the loan earlier than expected, you may be charged with a fee for early termination. Additionally, you might have to pay for other account charges and fees.
Getting the Best Rate for Your Loan
Apart from getting the right price for the car you want, another thing of importance is acquiring the best deal for your loan. Shopping around for credit prior to browsing for a car can give you more information on a loan that suits your needs. Most credit lenders can give you ‘in-principle approval’ for a car loan. This means that you are aware of how much can borrow and you won’t have to spend more than what you are capable of.
Dealer Finance
When you choose to buy from a car yard, your dealer may provide you with the financing you need for your vehicle. Although this may be convenient for you, it’s still ideal to shop around to ensure that you’re getting the best deal for your loan. Credit unions and specialist lending companies all have car loans so it’s best to check them out and compare rates. Doing so lets you select the best car loan for your situation.
Car Leases
Getting a car lease allows a person to rent a car for a certain period but doesn’t have the right to purchase it. When the lease ends, the contract is terminated and the car is then sold. It’s possible for you to make an offer for the car but the lending company doesn’t have to accept it. If you really want to own a car and make it yours, a car lease isn’t the right choice for you.
Car Insurance
Before you can take your car for a spin, a compulsory third party (CTP) insurance is needed first. When borrowing money and a lender chooses to have security for the loan, they often require you to take out comprehensive insurance for added protection. This insurance will take care of any damages to the car and the property of others in case of an accident or if it gets stolen.
Additional Insurance from Car Dealers
When arranging finance for your vehicle, car dealers may also provide you with add-on insurance such as gap cover, tyre and rim insurance and loan protection. Consider these choices carefully before taking them up as they may not be as good value for your money. Usually, these add-ons just add to the total cost of your loan without giving you much in return.
Final Thoughts
Purchasing a car requires you to make crucial financial decisions that can help you acquire the vehicle easily. That is why it is important that you first research all options available before deciding to shop around for the car that you want. Make sure you talk to various dealers to get an idea of what you have to pay.
If you’re interested in learning more about a car loan, we at Yes Loans have the experts who can help. Don’t hesitate to contact us today!