Cars can be an essential part of our everyday lives. They can give us the means to get back and forth from work and give us the freedom to travel wherever we want to!
However, most of us will be aware that cars aren’t cheap. As a result, if you don’t have the money to buy a car outright, you might turn your attention to a car loan.
Car loans are a specific type of loan that enable you to buy a car (minus your cash deposit) and pay the approved dealer directly. Of course, there’s a lot more we need to unpack here.
So, if you’re looking to learn more – then read on!
The Basics Of Car Loans
As we mentioned, car loans are a specific loan type, designed to help prospective buyers purchase a car.
The idea is to apply for a set loan amount by deducting your cash deposit from the value of the car you are looking to purchase.
Once you have worked out how much money you will need to borrow, you will then need to look at the loan duration.
The loan length of course will dictate how long it will take you to pay off the loan in full.
If you want a clearer idea of how long this will be and how much you will need, you can use a car loan calculator, which is normally available on the lender’s website, and this will give you a better idea of where you are at in terms of your needs.
This loan calculator will not harm your credit score either – which is important to note because it’s a wise idea to utilise this calculator before you formally apply.
Once you are approved for your car loan, the lender will directly transfer the money to your car dealer (assuming they are an approved dealer).
Once this is all completed, you will then need to arrange collection or delivery of the vehicle.
From here, the payments (normally monthly) will begin from the dates specified within the loan agreement.
What Are The Advantages Of A Car Loan?
Car loans have plenty of advantages for certain people.
Let’s take a look at these in a little more detail.
The biggest problem with buying a car these days is the costs associated with them. By applying for this type of loan, you normally have plenty more options for cars than you would with less money.
Get Your Car Quicker
If you are in desperate need of a car, these loans can make it happen much quicker than if you were to save up for many months.
Plenty Of Dealers
You will find there are many dealers that allow for this type of loan to purchase a vehicle. It’s just a case of shopping around and understanding your own personal circumstances.
Are There Disadvantages Of A Car Loan?
As with any type of loan, there are some disadvantages and they’re not for everyone. Let’s take a look at some of the most common:
You Still Need Insurance
Some people wrongly think that they do not need to buy insurance – but this isn’t the case.
As a result, you will need to put the insurance costs into your car budget, and some vehicles on offer might incur high insurance costs.
Crashed? You Still Have To Pay
If the worst should happen and you have written off your vehicle, you are still liable for the monthly costs until your vehicle is fully paid off.
Some policies will have schemes that cover this type of problem, but you need to read the agreement carefully.
Your Car Could Be Repossessed
Unlike buying a car outright, if you fail to keep up with the payments, the lender could repossess your vehicle at any time.
Be aware of this and the details will once again be outlined in your credit agreement.
If you feel you are going to miss a payment – you need to contact the lender as soon as possible. You may be able to make an arrangement or alter the credit agreement, depending on the circumstances involved.
Within your car loan, you will likely see the following words or acronyms and wonder what they mean.
Here’s some of the most common forms of car jargon:
- APR – Annual percentage rate. This is the fee you pay on top of your monthly costs. A good lender will offer rates at around 6% to 7%.
- PCP – Personal contract purchase. These are the monthly payments plus balloon payments if you’re looking to own the car outright.
- Total repayable – This is your final balance including all charges and interest rates.
- Agreement term – This is the length of your car loan.
How To Choose The Right Car Loan
We’ve got a few helpful tips for you to try to get you to choose the right car loan.
Consider some of the following points:
Sign With A Trusted Provider
It’s important that you shop around because your loan experience can wildly change depending on who you sign with.
Ask people who might know more about the right providers.
Don’t be afraid to ask as many questions as you want. It’s going to be a huge decision for you with financial consequences that can last for a long time.
Good dealers and lenders will be happy to answer any questions you may have.
Direct Debit Is Your Friend
Try to avoid manual payments as you could accidentally miss payments causing a default – which can impact your credit score and potentially lead to your car’s repossession.
Direct debits are your best friend here!
Car loans can be very handy and there’s plenty of options out there. Just be sure that you think carefully about your options before you agree to anything!