Car Loans come in different shapes and colors – it is important to understand the different loan types so that you can perform a valid loan comparison. There is more to consider than the interest rate, although the rate is not unimportant.
With such a loan the interest rate may fluctuate depending on the lender. So if your financial institution increases the interest rate your repayments will increase and if they decrease the rate your repayments will move down so will your repayments. As your repayments may vary from month to month this is not a good loan for someone on a tight budget.
A fixed car loan comes with a stable interest rate for the life of your loan. This loan will offer the same amount of repayments every month. Because of this it is easier to budget for a fixed loan compared to a variable loan; however, fixed rates tend to be a little more expensive than a variable loan.
With a secured car loan, generally the car you wish to purchase is used to secure the loan you are applying for. Secured loans tend to be cheaper than unsecured because in the even you stop paying your loan, the lender can take possession of the vehicle and sell it to recoup the monies lent.
Unlike secured loans, unsecured car loans do not require the car to be offered as security for the loan. They are effectively an unsecured personal loan. It is much harder to qualify for an unsecured car loan than a secured one. The borrower is required to have a clean credit history and stable verifiable employment.
Car loans just like home loans come with various loan features. Some of the most significant features you would choose to have with your car loan would be:
Whether you can pay out the loan early or before the end of the term without being penalised with a fee. This will differ between lenders and the type of loan you apply for. However we do have lender where this option is available.
This determines whether you are able to make extra repayments off your car loan. If extra repayments are allowed, you will also need to find out if you will be charged a fee for each extra repayment. There may be a limit on how many repayments you can make within a certain time frame. Make sure you understand the rules and features of the loan before proceeding.
A "balloon", is a one-off final payment made at the end of your car loan
contract which fully pays out the outstanding debt. Having a "balloon" can be
an effective means of reducing your fortnightly or monthly repayments over the
term of the loan.