Are you planning to buy or refinance your vehicle but don’t have the finances for it?
When buying a car, most people opt to get an auto loan than use cash to pay. Getting a car, negotiating its interest, and paying is easy with the right financing. As the number of applicants increases, the global automotive finance market expects a 7.2% growth rate in the coming years.
This means you have different vehicle financing options. By learning the different types of auto loans, you can determine the best term for you.
Do you want to know the best vehicle financing option for you? Read on to discover the different types of auto loans available today.
1. New Car Loan
When buying a new vehicle, you have the choice to pay using cash or credit. If you opt for a new car loan, as it has many benefits, many financing companies can offer their service to you. Apart from the dealer, you can ask an online lender, bank, or credit union to finance your car acquisition.
Before the companies lend money or resources, they conduct a credit investigation. The creditor evaluates your credit application, credit history, and capacity to pay. After the procedure, they decide whether they approve or reject the loan.
If your application gets approved, the financing institution provides you with loan terms. It covers the loan amount, interest rate, and repayment schedule. Often, loan terms can last up to 3 to 5 years to pay.
Although uncommon, some financing company asks for a down payment. When it comes to a new car loan, you often receive lower interest rate offers, unlike other auto loans.
2. Used Car Loan
Do you dream of owning a popular car model that’s out of budget? Consider getting a used car loan instead. This type of loan is a financing option used for pre-owned cars.
A used car loan shares the same terms as a new car loan. They provide you with a loan term, disclosing crucial information about the credit. However, this type of loan often has higher interest rates.
So, what good do you get in a used car loan? With this loan, you can get your dream car while saving money.
Note that a vehicle is an asset that depreciates. The average useful life of a car ranges from 8 to 12 years. However, it can get short if often used.
As you drive a new car out of the lot, it loses 10% of its value. After a year, it loses another 10%, totaling 20% depreciation in 12 months. If put up for sale, you can buy it for 80% of its original price.
Although many certified pre-owned auto loans, most financing companies offer non-CPO vehicles. With this, you must look for a service that serves the interest of their clients in mind.
Check out carsfast.ca for some flexible vehicle financing options.
3. Secured Loan
As the name suggests, a secured loan uses security to reduce risk. In vehicle financing, the car itself is the collateral of the credit. For new and used vehicles, a secured loan is one of the types of auto loans used.
In this kind of credit, the creditor uses a lien on the vehicle to secure the loan. With this, you cannot transfer the property title unless you complete your payment. If you fail to pay on time, the creditor can reclaim the car and sell it to recover the uncollected sale.
Many financing companies use a secured loan to motivate clients to pay. As the car owner, you don’t want to lose your asset. Financial institutions like banks and credit unions often offer this type of loan.
4. Unsecured Loan
If you don’t wish to use your car as collateral, you can avail of the unsecured loan. This vehicle financing option is ideal for buying inexpensive, old, or collector cars. As creditors limit the age and mileage to use auto as collateral, these cars don’t qualify as a security.
With this, creditors cannot reclaim your asset when you go default. To recompense for the increased risk, they offer higher interest rates for unsecured loans. When faced with a situation, it’s crucial to weigh your auto financing options.
5. Private Party Loan
Is there a specific vehicle model you want to buy from a private party? Instead of buying a car from a dealer, some prefer to buy from an individual seller. For financing, financial institutions offer a specific type of auto loan.
A private party loan finances the acquisition of a vehicle from a private individual. When using this type of loan, you must consider some factors. Some are the existence of an outstanding lien on the car or unpaid balances of the seller on their loan.
Apart from those, note that there are limitations on what car you can buy. To secure the loan, the financing company uses the vehicle as collateral. With this, the car plan to buy must be under 150,000 miles and ten years old or younger.
6. Auto Lease Buyout Loan
Car leasing is common in most countries. This allows you to rent an auto for an identified period and miles. When it comes to the payment, you pay the dealer every month.
By the end of the contract, you have the choice to return the car or buy it out. If you get attached to the vehicle, letting go can get hard. To keep the car, you can use an auto lease buyout loan to buy it.
With this type of credit, the leasing company transfers the car ownership to your name. Then, you pay the creditor the same payment you give in the lease. An auto lease buyout follows a fixed payment method over a pre-set term.
You get full ownership of the vehicle after clearing your obligation. You must have a good credit score to get your loan application approved. With this, it guarantees the creditor your credibility and capacity to pay.
Different Types of Auto Loans: Knowing Your Options
Many people choose an auto loan to buy or refinance their cars with its advantages. However, there are many types of auto loans to consider. With this, it’s crucial to learn their differences to know the best option for you.
After identifying the right term, process your application and enjoy your ride. Now that you have your new car, you need to keep it in great shape. Check out our other blog posts to learn more about vehicle maintenance.