No matter if it’s your first car or if you have bought many different cars in your life, getting a new set of wheels is super exciting. You will probably do lots of research into which cars offer the features you want, what fuel consumption is like and even its likely resale value over time. But it’s also important to put an equal amount of thought into the right financing structure and the different car loans from which you can choose. Let’s take a look at the most popular options.
Some people have the cash flow to be able to pay for their new car outright. This could be a good option, but there are also drawbacks. Taking out a car loan, and making your repayments on time and in full, is a great way to show lenders you are responsible with credit. It’s also a way to build up a good credit score, which can help you secure other loans such as a mortgage down the track. You can check your credit score for free attoday and also take a look at the different car loan options available.
A secured loan means the lender can sell the underlying asset, in this case a car, if you don’t meet your repayments. An unsecured loan means it’s not linked to your car, it operates more like a personal loan. If you don’t make your repayments, the lender can still sell your assets, including your car, to pay off the debt. But you’re likely to pay a higher interest rate with an unsecured loan.
When you take out your loan, you will also be able to choose between a fixed or variable rate of interest. A fixed rate means the amount you pay each month or fortnight will be exactly the same over the life of the loan. A variable rate means the amount you pay may change as interest rates change. So if interest rates rise, the amount you pay will too. The reverse is also true. If you think interest rates are going to fall, you may decide it’s better to take out a loan with a variable interest rate.
If you are buying a car from a dealership, it’s likely the dealer will have an arrangement with a lender so you can take out a loan with them at the same time you buy the car. This can be convenient, but you may find you pay a little more as the dealer may earn commission on the loan. If you are buying a car privately, it’s likely you will need to arrange finance with a lender before you purchase the vehicle.
As you can see, there are many different options when it comes to paying for your car. It’s really important to understand how each one works, and in particular how much you will need to pay off over time, before deciding which one is right for you.