How Do Car Loans Work?
If you are considering buying a new car but don’t have enough money to cover the full cost, you may be wondering how to finance it. There are two main types of car finance, secured finance and unsecured finance.
A secured loan involves the use of your car as collateral to ensure that the lender doesn’t lose money when you fail to pay it back. You can also choose to pay a smaller amount of money up front by using a PCP plan.
Getting a bank loan
Getting a car loan from a financial institution can save you money in the long run. It helps to know how much you can finance before you start shopping for a car.
Different banks and lenders have different rules regarding the amount of money they are willing to lend. While they may not be able to match your offer, they can still help you to get a lower interest rate.
Getting pre-qualified is one way to get an interest rate that is lower than the bank’s interest rate.
Getting a personal contract purchase (PCP) loan
If you are considering a personal contract purchase (PCP) type of car loan, it is important to know the terms and conditions. For starters, you should be aware of excess mileage charges.
This charge will be stated on the contract. If you go over the agreed mileage, the lender will charge you a penalty. In addition, you may be responsible for the cost of repairs if you decide to end the contract early.
However, if you are financially struggling, you should try to seek free debt advice before making a decision.
Getting an unsecured loan
If you are looking to buy a new car, you may be interested in taking out an unsecured car loan. These loans do not require any collateral, and although they are easier to get, they are generally more expensive than secured loans.
Moreover, they are subject to stricter eligibility criteria. Listed below are some tips to help you decide on an unsecured car loan.
The loan will depend on the type of vehicle that you want to buy, and the type of repayments you are capable of making.
Calculating your monthly repayment
To calculate your monthly repayment for car loans, first you must know the loan length. A four-year loan, for example, requires 48 monthly payments. Next, you can multiply the length of the loan by 48 to find the total monthly repayment.
The longer the loan, the greater the total monthly repayment. If you don’t know how long it will take you to pay off your loan, it’s simple to find the monthly repayment by multiplying the loan’s duration by 12 months.
