Whatever car type, new or used, big or small, a car loan is the first step in helping you to secure your dream drive. And here is a guide for car loan:
- Loan Amount
Set a budget and stick to it. However, when applying for a car loan it is important to know your loan price so that you don’t sell yourself short by under-borrowing or adding extra financial pressure on yourself by over-borrowing.
The amount you should borrow will depend on the price of the car that you wish to purchase and how much of your own money you will use towards the car. Most importantly, it will depend on what you can afford to make in repayments.
- Loan Type
Get familiar with the different car loan types so you can spot the right one:
A variable car loan’s interest rates are dependent on the lender, which means they can fluctuate and affect your repayment amount. So if your financial institution increases the interest rate your repayments will increase and if they decrease so will your repayments. This type of loan is harder to budget for as your repayments may vary from month to month however, the interest rates are generally lower than fixed rates.
As you might have guessed, a fixed car loan is a type of loan where the interest rate is fixed for the term of the loan, which means your repayments will always stay the same. Because of this it is easier to budget for a fixed loan compared to a variable loan; however, fixed rates tend to be higher than variable rates.
With a secured car loan, generally the car you wish to purchase is used as an asset for security against the loan. Because this loan is considered a lower risk for lenders, due to the fact that if you default on your repayments they can repossess your vehicle and sell it to pay off your loan, it generally offers better interest rates.
Unsecured car loans do not require the car as security against the loan. Instead you need to prove that you can meet the repayments by showing a history of savings or if you have previously had a loan or a credit card that you met the repayments. Some borrowers may not have the option of choosing between secured and unsecured car loans but with so many to choose from on RateCity you are bound to find one that is great value and suits your requirements.
- Car Type
New car loan
A new car loan is a type of personal loan available to fund the purchase of your new car. With this type of loan, there are usually conditions about the age of the car that you wish to purchase. These will differ between financial institutions. Some may offer new car loans to brand new cars only, while some may consider a new car no more than two years-old or with a certain amount of kilometres on the clock.
The great news for new car buyers is lower interest rates. The interest rates for new car loans are usually a bit lower than a used car loan as this type of loan is seen as less risk to the lender because new cars are generally worth more than older models.
Used car loan
A used car loan will allow you to borrow money in order to purchase a used car only. Depending on the financial institution, there may be restrictions on the age of the car in order to be eligible. For example some may offer this type of loan to cars that are between two to five years-old. Always check with your lender for terms and conditions.
The other major difference between a used car loan and a new car loan is that interest rates may be a little higher for used car loans. But like a new car loan, there are also a range of secured and unsecured used car loans available to choose from.