Life is full of all kinds of expenses, and when the time comes for a new car, it could set you back considerably should you pay in cash. This is where car loans can come in handy. However, if you find ‘the dream car’, rushing through a loan approval is not advised. Some tasks should take time, locating and applying for a car loan is one of these tasks.
So, if you know you are going to need a new car, and won’t be paying in cash, it’s important to conduct the right research. Let this article be a starting point for informing yourself; here are three points worth keeping in mind.
How does a car loan work?
As with any other loan, a car loan is cash approved by a lender for you to put towards purchasing a vehicle. Depending on the lender or bank you pick, the terms and amount you can borrow for this loan may vary. Generally, however, whilst most people won’t take a loan larger than fifty thousand, you may be eligible for up to one hundred thousand if you’re looking at a top end vehicle.
Some of the other factors that may vary with a car loan include the interest rate and the loan term. Often it is up to you how long you would like your term to be. However, the interest is subject to the type of loan you choose.
Another option you may have available to you is whether you go with a secured or unsecured loan. Typically, if you are approved to borrow a larger amount, you may have no choice but to offer collateral for approval. The loan will often be secured against the vehicle, meaning if you fail to make your repayments the bank can repossess the car. You wouldn’t want your efforts to be for nought, which is why weighing the pros and cons before taking a loan is always smart.
What to consider before taking a car loan?
Aside from considerations about the term, the interest, and whether your loan is secured, you should also ask yourself whether this is the right option for you. There are a few instances where taking a car loan may not be the best course of action. For example, if you have a negative credit history and existing debt that you are struggling to manage, a loan might not be the way.
Even if you don’t have any current debt, consider your lenders eligibility criteria. Make sure you have the right personal details on hand, have a steady stream of income, and a credit history your lender will like.
Beyond this, don’t overlook the additional fees. Some banks will charge you processing fees or late payment fees should you fail to make your monthly repayments. Whilst these charges may seem insignificant, they can quickly stack up leaving your wallet aching. Reading into the processes of your desired lender may help you to avoid these little nuisances further down the track.
Another important point to consider is whether you need to take a car loan in the first place. Is the car you are buying worth the money? Does it meet your needs? Do you need the latest model, or can you save yourself some cash by buying second hand?
New vs used cars
For some, that new car smell marks success, the achievement of purchasing something you may view as an asset. However, cars aren’t actually assets for the simple reason that as soon as you drive a new car home, its value starts depreciating. Which is where it may be worth looking into the used cars available to you.
With a used car, someone has already taken the brunt of the depreciation for you, meaning the prices will be much lower, and you may even be able to make the purchase in cash. This can be a good alternative if you have a poor credit history and are unlikely to receive loan approval.
However, used cars may not be as reliable and could potentially be prone to mechanical problems, and certain new car dealerships may offer financing opportunities. There are pros and cons to each option that need weighing. Which means you should really ensure you have put adequate thought into what needs you have, and which type of car will meet them.
This is just a bit of light reading to get you started on your journey to a new car. Most big banks will have informative pages about how their car loans work. However, if you are looking for other sources of information, consider asking a lender you’re interested in to tell you more, or visit government sites that could be relevant.
The world of car sales can be deceptive, the best advice on offer is to be 100% sure of whatever deal you enter, whether purchasing new or used. Also ensure that you read all the terms your lender has before signing a contract. If you are unsure whether a car loan is right for you, consider a financial adviser’s aid. Happy car hunting!