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What is a Car Loan?
A car loan is a type of credit offered by a bank or other financial lender for the specific purpose of buying a vehicle. Car loans allow you to finance buying a new or used car .
There are a range of car loans available from banks, building societies or financial institutions; you can also take out a car loan with a specific car loan lender .
Car loans are the most popular type of loan that people apply for. Car loans, as the name suggests, are unsecured loans specifically designed for the purchase of a car.
Car loans can be seen as a riskiest of loans from the lender's point of view. This is because unlike a secured loan that may be used for home improvements that can add value to your home; a car loan is for an asset that depreciates very quickly. Thus you will find that car loans have generally a higher rate of interest than any other type of loan.
A car loan does not require any collateral to apply. Almost all loan providers will allow you to apply for a car loan, with a few specializing in this area. The main reason people may apply to a specialist car loan provider (such as car dealers) may because their credit rating is not good. Please be warned that you will pay a higher interest rate from these specialist firms.
You enter into an agreement with your lender to borrow a specified amount, usually up to a maximum of £25,000 depending on your circumstances. You then pay back the loan over a set period of time.
The payments you make consist of both the principal amount of the loan plus interest. With this type of loan you own the car from the time you buy it. Car loans are form of personal loan of which there are several basic types with slightly different conditions attached.
There are three different types of car loan:
Manufacturers' schemes
You see these types of loans advertised by the car manufacturer and these can be arranged either directly with them or via a local car dealership. Part exchanges on your current vehicle are normally accepted, and the remaining balance is paid through a loan. As with a hire purchase scheme, you will not be the owner of the vehicle until you have repaid the loan in full. If you default on repayments, the car will be repossessed.
Hire purchase (HP)
This sort of car loan is arranged by car dealerships, and in effect it means that you are hiring the car from the dealer until the final payment on the loan has been paid. When the loan has been fully repaid, full ownership of the vehicle is transferred to you.
Personal Loan
You have the option of either taking out a general personal loan, or a personal loan designed specifically for car purchase. The two are almost identical, but because a car loan is taken out specifically to buy a car, the lender may offer you car-related incentives such as emergency breakdown cover, free motor insurance or special discounts on car accessories. Personal loans normally have lower interest rates than manufacturer schemes or hire purchase loans.
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DID YOU KNOW?
- Most any large city has a number of small shops offering payday loans. They’re often found in strip centers; sometimes they double as pawn shops. They have a simple business – they lend you money until your next paycheck. The system is pretty convenient; you write them a postdated check for the amount you’re borrowing plus interest. On your next payday, they cash the check and your loan is paid off. What many people who use payday loan services fail to realize is that the interest rates charged by these firms are substantial, often reaching the equivalent of four hundred percent per year! DELETE
- To get a secured loan it can take time for loan approval, as the property will be inspected and appraised. Unsecured loans such as credit cards are usually faster to acquire, however the loan approval time may include a credit check. A credit check involves a lender getting a copy of your credit report to inspect your credit history.
- All kind of loan – educational loans, auto loans, secured loans, unsecured loans, personal loans and any kind of loans – can be consolidated under debt consolidation mortgage. It is highly appropriate to adopt debt consolidation mortgage if you have numerous debts. However, a prudent step will be to understand debt consolidation if you actually want to apply for it. Debt consolidation mortgage has the capability to be turned in a way so as to allow maximum monetary benefits. Yet, one little error with debt consolidation mortgage and your situation will be back to square one.
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