About Car Loans
Buying a car is a major purchase. Some people can save carefully and pay for a car with little or no loan. Many others need some type of loan.
Plenty of banks, finance companies, even car dealers can offer you a loan to buy a car. The problem is – not all car loans are the same and it can be hard to ensure you’re getting a good deal. It’s important to shop around as a convenient caryard finance deal may not always be the best value.
Banks tend to do unsecured loans for car purchases. Most other car loans are 'secured loans'. This means the car is a security or collateral for the money lent. If a borrower can’t repay the agreed loan, then the lender (e.g. finance company) can legally take the car back from the borrower - this is called repossession. They would then sell the car to recover some of their money. BUT you may still owe money if the selling price does not fully cover the outstanding loan.
The total cost of the loan is all the money borrowed, fees and interest. It may also include insurances. Be wary of these insurances as you have the choice of insurer and the only compulsory insurance is comprehensive car insurance.
When applying for a loan a lender should assess your ability to afford repayments. They would also check your credit file to see any past records of borrowing or loan difficulty.
THINK CAREFULLY: If you’re turned down for a car loan it usually means the lender is concerned about your capacity to afford the loan payments over the term. Could you really afford the loans you are applying for?
Some lenders offer ‘second chance’ loans for people who have been rejected for finance elsewhere. These loans usually cost more because there’s more risk that the customer might default (end up in difficulty). Beware of paying too much for a car loan.
- It's best to try and reduce loan costs by saving as much as possible for a deposit and consider a more affordable car, a smaller loan, or no loan at all.
- Carefully consider how a loan repayment will fit into your current budget and whether you will have enough money left over for emergency expenses or leisure.
- Compare all the loan costs between banks and other lenders to work out the best option for you. There are loan comparison websites available to help with this.
- An unsecured loan is usually cheaper.