When you buy a car, it is necessary that you find the right loan for you based on your needs and budget. You should be careful because you might not get the best deal like all things in life. So, it is important to understand your options with auto loans and make sure you don’t get ripped off or come home with a lemon (a vehicle that is too expensive to fix — and which you must replace). Here’s what you shouldn’t forget before you sign up.
How Is an Auto Loan Different From a Personal Loan?
Auto loans are meant to help you buy a car. Most loans for vehicles are made on the same terms as that of conventional personal loans, including payment schedules, interest rates, and credit scores. Auto loans are usually secured with the vehicle as collateral.
A personal loan is a loan that is not secured by a specific asset, like the borrower’s personal residence, vehicle, or savings deposits. Instead, a personal loan is backed by your credit history and earnings or by your credit card portfolio if you have one.
Loans for Pre-Owned Cars v/s New Cars
You should shop for a car loan from different lenders, regardless of whether the vehicle you intend to purchase is new or used. The loan conditions will vary according to the price of the vehicle and the interest rates available to you. In general, rates on new vehicles tend to be lower.
Car Lease v/s Loan
Because leases and loans can be so similar, it is not always easy to tell the difference. However, because a lease begins with a different set of terms than a loan, certain things characterize this type of financial commitment. For starters, the vehicle you’re leasing is not your own.
With a loan, you purchase the vehicle at full price and then decide how much to spend per month on the vehicle each month for the duration of the lease. With a lease, you merely pay each month to rent the vehicle. And because the ownership stays with the original financing company, you must return it when the lease is over.
Preparing for an Auto Loan
Compare auto loan rates from lenders such as a local bank, credit union, insurance company, and online lenders. To get an accurate idea of your rates, you must know your credit history and credit score. Your credit history will likely be obtained by contacting the major credit bureaus.