For most people, a car is no longer a luxury, but a necessity. However, not everyone can afford to buy a car immediately at their own expense. In this case new car loans come to the rescue.
How do new car loans work?
Car loan is a special form of a personal loan, in which the bank grants a targeted loan for the purchase of a car. According to the rules, the borrower cannot spend it on anything else and it is directly transferred by the bank to the account of the car seller – to a car dealership whose services you decide to use.
The collateral for the bank is the purchased car. However, this does not impose any restrictions on the buyer, with the exception of one thing: the buyer cannot sell his/her car until he/she repays the loan.
In most cases, a car loan implies compulsory insurance of the collateral, that is, your car. Insurance makes buying a car more expensive, but it provides a peaceful sleep to all parties of the contract. New car loan terms are stipulated by the corresponding loan agreement, which determines the rights and obligations of the borrower.
Now there are several types of new car loans that are worth considering and familiarizing yourself with the loan conditions.
Classic car loan. Such a car loan is granted in all banks engaged in car loans, under standard conditions. The borrower can get a classic loan to buy a new car at a car dealership, while a car dealership should only be one of those with which a bank granting a car loan cooperates. Interest rates on such a car loan are relatively low, from eleven percent per annum, which is one of the advantages of a classic car loan.
Another advantage of this type of car loan is the longest terms. You can take a car loan for up to ten years.
Express car loan. Such a loan product is designed more for emotional buyers. A bank employee at a car dealership kindly offers to provide a loan for a car in one hour, without leaving the spot. Nobody argues, this is certainly a tempting offer, especially for those who have long dreamed of a car. And interest rates, as in the classic loan, are relatively not high.
But taking an express car loan, the borrower every month, in addition to paying off interest and the main debt on a loan to the bank, will also pay an additional separate commission. On average, such a commission is six percent per year and is calculated from the initial amount of loan funds, therefore, after the lapse of time and the reduction of the main debt through payments, the commission will not be reduced. This fact refers to one big drawback of express car loans.
The advantages include almost instant review of the application and the lack of requirements to provide official confirmation of labor activity and the monthly income of the borrower.
Car loan without interest. Some banks, together with car dealerships, arrange sales promotions: either a very small interest rate, or none at all. But there are many conditions for such car loans. An initial contribution is required, which will be at least fifteen percent of the total cost of the car, or even fifty.
Such a loan product applies only to cars that participate in the promotion. Usually, when buying a car on credit without overpayment and interest, the borrower has to install additional options on the car immediately, that is a condition of the sales promotion. It can be an expensive signaling and so on.
Deferred car loan. This is a new type of car loan. Having received such a loan, the borrower pays the bank only part of the money during the entire loan term. At the end of the term, the borrower remains owed twenty to forty percent of the car’s value to the bank. This part is called “deferred payment”. There are three ways to repay the remaining debt to the bank:
• Pay the rest of the debt in a single payment;
• Make an installment plan for several years at the bank;
• Sell the car you bought on credit back to the car dealership.
You can return a car only to the salon in which you have purchased it. And in the event that the borrower does not transfer the deferred payment immediately to the bank, taking a deferment, the bank can set a higher interest rate than it was originally set. Here, the initial loan rates are not high, as well as when applying for a classic car loan – from eleven percent per annum.
But in the event of a rate increase due to deferred payment, it can significantly hit you in the wallet. The monthly payment will not be large even if the cost of the car is quite high. But interest during the entire period is paid to the bank by the borrower from the entire loan amount.
These are all the main and most common types of car loans. But it is worth considering that interest rates can vary depending on the borrower’s employment, his/her monthly income, the down payment amount, and other conditions required by the bank from the client.
How can I apply for a new car loan?
Loans for the purchase of cars as a financial service are provided by banks and car dealerships, which cooperate with banks. You can also contact brokers or become a client of the car bank.
After choosing a credit organization, you need to familiarize yourself with all the conditions and possibilities of receiving a loan. If the conditions fully meet your requirements, you must fill out an application, collect and transmit a package of required documents. If a bank is selected as a partner of a car dealership, the client transfers all the necessary documents for a car loan to a car dealership. If the car dealership does not work directly with the selected bank, the documents must be brought directly to the bank, after which the bank carries out the standard procedure for deciding whether to grant a loan, and then contacts the car dealership and coordinates the actions for providing a loan to the client. An application for a loan is considered within a few business days, but the entire procedure for granting a loan may take a couple of weeks.
After this procedure, it is necessary to conclude an insurance contract for the purchased car and liability insurance; life insurance may also be required. This serves as collateral along with the pledge of the purchased car. Moreover, insurance can be carried out only in insurance companies recommended by the bank. As a rule, a car is insured at full cost in favor of the bank.
How much does a new car cost?
The average price of a new car is $35,000.
What are the benefits of using a new car loan?
The main advantage of a new car loan is the opportunity to buy the car you want, and not the one for which there is enough money. Previously, the main way to purchase a car was to save up for it. The method is rather slow, moreover, your savings can lag significantly behind inflation, which depreciates savings. And if you need a car here and now, then the option with savings is clearly not competitive.
Another important advantage of a car loan is the ability to buy a new car. Additional costs (insurance payment, loan interests) can be paid off by the absence of those expenses that the owner of an old car traditionally incurs. Firstly, in the first two or three years, in the event of force majeure, repairs under warranty or insurance are provided. Secondly, new cars, as a rule, do not “crumble”. If you go on vacation by car, then the old car may turn out to be “restricted to travel abroad” (cars that do not comply with European standards for their engines are not allowed in many countries of the world). Also, our website provides detailed information about used car loans and personal loans for cars. Webmoneyloans is always ready to help you.
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