For
everyone interested in buying a car, questions related to finances are
inevitable. Up to what amount are you willing to spend? What amount can you ACTUALLY
spend? Where will you get the money for your car purchase? And so on.
Fortunately, financing options are readily available to anyone interested.
Among which is the car loan. However, every borrower needs to be informed of
the different considerations for applying for car loans.
To
begin, there are two general types of car loans that are usually available:
unsecured loan and secured loan. An unsecured loan is one where no collateral
or security is required by the lender for the loan to be granted to the borrower.
On the other hand, a secure loan, normally the type for car loans, requires a
form of security or collateral for the approval of the loan to the borrower.
Secured car loans legally allow the lender to secure their money by registering
a financial interest in the car (using the car as security for the loan), until
full payment of the loan, then they will deregister their financial interest in
the loan.. This in turn enables the lender to repossess the car if the borrower
is unable to repay the loan. Though at first glance it would appear that a
secured car loan is very risky, you should remember that repossession of the
car will only happen upon default of payment of the loan. Note that secured
loans typically have lower interest rates than unsecured ones, and with the
right information and guidance, you will be able to pay the car loan in a
manageable scheme.
Another
factor to consider is the interest rate. Secured car loans will have lower
interest rates compared to unsecured car loans.
For example, best case a secured car loan for business use can have an
interest rate as low as 5.5% p.a. for a prime borrower, compared to an
unsecured personal loan of 12.99% for the same prime borrower.
Also,
car loans have payment periods that can vary from just a year up to seven
years. In this case, it is important to remember that shorter payment periods
will have higher repayment rates but lower interest, while longer payment
periods will have lower repayment rates but with high interest. In this regard,
it is best to find out the limits of your budget and to track your expenses to
be able to find out which car loan is suited to your means. We will let you in on a free tip here. Did you know why its better to get a longer
loan term? If your loan is spread out
over a longer term, then because your monthly repayments are lower, if you go
and apply for additional finance in the future, because your overall monthly
repayments are lower, you are more likely to meet the lenders serviceability
assessment. Just make sure that the loan
is structured so that the lender will allow you to repay the loan without
significant exit fee's or early repayment fee's. This way should you have spare
funds, you will be able to make extra repayments without worrying about
excessive early repayment fee's. As an
example, GE allow you to repay the loan early in the second year with exit
fee's of only $150 (approx).
One
more thing to consider is your personal credit worthiness. Banks and financial
institutions use this among the criteria on granting your loan application, as
well as determining the interest rate to be given to you. A high credit rating
likely yields a lower interest rate while a low credit rating might even
jeopardise your loan application.
These
factors to consider when applying for a car loan can become tricky – even
intimidating for most people. Fortunately, the finance group Parramatta has the
staff and expertise to help you in financing your car purchase. With their
expertise and knowledge, you will be able to have access to the financing
scheme most suitable to your lifestyle and without any stress during repayment.
Parramatta’s professional and expert staff will ensure that you get the right
advice for your financial needs and for your maximum satisfaction.
