A car loan is a kind of personal loan which is particularly meant for buying motor vehicles. There is a wide range of motor vehicles which are considered under motor vehicle finance and they invariably include a car, Ute, road vehicles for commercial as well as personal; purpose, bike, scooty, 4WD, motorbike, etc. both car loan and motor vehicle loan stand to be same. There is a wide range of financing options, but in most cases in order to avail a loan, you need to showcase your credit records, have sufficient financial income to prove your eligibility for repaying the loan.
Car loans can be taken for both new cars as well as used cars. While in most motor vehicle finance is available only for new cars, some finance companies and lender do offer finance on used cars as well. However, if you are looking for a used car loan, do check the used car loan criteria for in most cases lenders and financers allow finance credit for a relatively new can, sometimes a car not older than 5 years.
Types of Motor Vehicle Finance
Secured Motor Vehicle Finance or Standard Loan: In this type, you essentially need your newly purchased car as a guarantee for repayment. Characterized by flexible options of repayments, lower interest rates, fixed and floating interest rates, this is the most common type of finance option. It can be both secured and unsecured loan, but it is the simplest of all.
Unsecured Finance: with higher interest rates, this type of finance does not ask for a guarantee. You can use the finance amount for any purpose, for buying a new or used car or for any other purpose as well.
Dealer Motor Vehicle Finance: This type of finance is offered by car dealerships and not any finance company or bank. Though the initial interest rates may seem higher the monthly repayment instalments are lower. But you essentially need to pay a bulk amount known as the “balloon payment” which range may from 0% to 60% of the premium amount.
Chattel Mortgage System: this is a combined finance system which takes some features of secured car loan and dealer loan. While your car is taken as a mortgage and turned into your property once the loan amount is fully repaid, you also have a balloon payment option to minimize your monthly repayments.
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Other Options Are:
Finance Lease
Operating Lease
Novated Lease
Commercial hire purchase
Choosing Right Motor Vehicle Finance
When you are considering a loan to get a car for your personal use or business, it is indeed important to make some calculations, assumptions and analyzing of your own financial situation to understand which loan can be most suitable for you.
Loan Amount
Verify your available funds to ensure how much loan amount you need to apply for. The lesser the loan amount the lower your burden will in the coming months of repayment.
Compare Interest Rates
The higher the interest rates the more the stress will be during repayments. Therefore, it is undoubtedly better to compare between all available car finances in the market. The loan eligibility and loan features may differ a bit as accordingly the interest rates. Therefore, analyzing your current financial status and accordingly calculating the interest rate and repayment amounts or the balloon repayment amount is the best way for decision making. Last but not the least another vital decision with finance happens to be the rate of interest type, whether to choose a fixed rate or floating.
Buying cars are not at all a big thing nowadays you can easily avail the loan from so many options available and have your dream car.
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