Banks and lenders issue car loans every day to consumers for new or used car purchases. However, many people don’t realize they can save hundreds and maybe thousands of dollars by comparing car loans.
Finding the right car loan can be the difference between buying your dream car and settling for something else. Shopping around for the best car loan can save you thousands in interest and fees.
The right car loan may take a while to find; many factors contribute to whether a loan is favorable. There are balloon payments, secured or unsecured, and fixed or variable interest rates to consider. These costs highlight how important obtaining the right loan is.
When to secure a loan?
When shopping around for the right car loan, conduct all research before entering a car dealership. Once you’ve found a loan, you’ll be in a far better position to negotiate as you’ll know exactly how much you can afford to spend.
Understanding the types of loans
Car loans aren’t straightforward. There are many factors to consider when it comes time to decide on the right loan. No matter what type of loan is best for your situation, research enables consumers to make financially smart decisions.
Fixed or variable interest rate
With a fixed interest rate, the interest rate and the car loan repayments are unchanged for the loan duration. The borrower knows precisely how much the payments will be each month from the first to the last.
A variable interest loan means the car loan payments can and will change if interest rates change. So, if interest rates rise, the payments will go up. On the other hand, if interest rates fall, the payments will go down.
Secured or unsecured loans
Typically, most car loans are secured. The car itself will most likely be the security for the loan. Put simply, this means if the payments are late, the lender can repossess the vehicle and sell it.
With an unsecured loan, the borrower does not have to provide the new car as security. However, the interest rate will be higher, and, in most cases, car buyers cannot borrow as much money under an unsecured loan.
Comparing car loans
Taking the time to compare car loans can save you hundreds and even thousands of dollars. With the average loan size across all age groups sitting at $31,738.40, it’s essential to have confidence in your loan.
When looking for a loan, some of the key features to compare are:
- Comparison rate: the cost of the loan, including interest rates and fees. When researching loans, compare the loan amount and term.
- Interest rate: the rate of interest applied to the amount borrowed.
- Application fee: refers to each loan institution’s fee when applying for a loan.
- Other fees: additional fees, for example, monthly service charges or late or missed payment penalties. Find a list of these fees in the terms and conditions.
Acquiring a car loan
Acquiring a car loan can go a long way toward helping you purchase the car of your dreams. Additionally, the right car loan can mean getting your dream car. Finding the right car loan is often the result of thorough research.
While comparing interest rates, loan terms, and fees can be tedious, it is worth it. By taking a systematic approach to researching car loans, you may be in a position to save hundreds, which is often the difference between your dream car and another run-of-the-mill vehicle.
What happens if you damage or write off the car?
So, what happens if you take a car loan out but write it off in an accident, or someone hits your car while parked? If you still owe a large amount on the vehicle, you may be in trouble, and it’s not something that’s always covered by your insurance.
For this reason, it’s recommended you take out GAP (Guaranteed Asset Protection) insurance, which would protect you fully while driving a car under a secured loan.