25 May 2021 | By Lending People
Explore your car loan options before stepping into the car yard.
Let's navigate the different routes you can take when it comes to taking out a car loan.
When it comes to buying a car, there are many roads you can go down to get a loan, each of which has its own set of pros and potholes.
- Secured car loan: With this type of finance, the car you buy becomes collateral, secured against the loan. If you fail to make the payments, the lender has the right to repossess the vehicle. The good news is you’ve got a good shot at being approved. These loans tend to be easier to get as there is minimal risk for the lender. Another upside of these loans is that they usually have higher borrowing limits and lower interest rates.
- Unsecured car loan: As you’ve probably guessed, these loans don’t require an asset as security. If you cannot repay the loan, the lender can’t take the car (at least not immediately) – instead, they will chase you for payment via a debt collector like BayCorp. Your credit rating plays a much bigger role when applying for an unsecured car loan as it’s a whole lot riskier for the lender, and with that, increased risk comes increased interest rates.
- Unsecured personal loan: If you cannot get a secured car loan, you may be eligible for a personal unsecured loan. Personal loans tend to have more flexibility around repayments; however, they will probably have higher interest rates.
- Extending your mortgage: If you’re a homeowner, you have the choice to extend your mortgage or get a revolving credit loan, which is a bit like an overdraft. The benefit of a revolving credit loan is that the credit limit is there for you to tap into whenever you need it. There aren’t any set repayments dates, so you pay back as much as you want when you want. Another bonus is that the interest rates will be the same as those on your mortgage, which tend to be lower than car loans and personal loans. Evaluate carefully if this is the best choice for you first. Adding the cost of a car to a mortgage and not pay it off for many years will end up costing a lot more in interest overall than compared to paying off a car loan in one or two years.
As responsible lenders, our experts are on hand to navigate which option is best suited for you. But, of course, we will need to ensure you’ll be likely to afford the repayments of any loans offered and take into consideration your income, along with any major expenditure such as other loans.
A car loan option you can actually afford works best for everyone! Ultimately, deciding how much you can afford is of course up to the borrower – it’s best to consider your current financial situation, as well as any predicted change in the future.