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While buying a car for the first time, the first question you would want to be answered is:
What do I need to take a car loan?
Usually, car loans are available without much hassle. You can get one from a local bank if you have a good credit rating; or from a private lender, if your credit rating is just average.
The car loan is usually given for a fixed percentage that you have to pay on top of the actual amount. Let’s say you take the car loan for four years with a 6% interest. Then, you will have to pay the interest amount in the next 48 months. If you default… that is another story.
But ask yourself first,
Why take an auto loan at all?
First of all, make sure that you avoid taking a loan for anything. Loans incur colossal interest, and paying them can become a real problem for you in the long run. If you already have a bad credit rating, you should avoid taking the loan in the first place.
Quick Facts:
Washington Post reports, almost 7 million Americans are three months behind on their car loans
However, if you want to take a car loan, make sure you reduce the amount of interest you will have to pay on that loan. Let’s say; your loaned amount is $10,000. Your interest rate on that loan is 6%, and you have to pay it back in the next three years.
So, here is how the calculation goes.
The total cost you will pay over the loaned amount will be around $1000 in the next three years. But, the good part is that you will be able to take a car of your choice with the loaned amount.
Types of car loan you can get:
Here are the types of loans available for car buyers. Remember, it all depends on your credit rating about the kind of loan you can get from the bank.
Bank loan:
Depending on your credit rating, you can get more loans from your bank. If you already had taken a loan before and returned it on time, there is a chance that the bank will give a discount on the percent you take as the loaned amount.
Most banks are advertising promotional rates for car loans from time to time. And, it is a norm to consider the relationship history of customers when providing these loans to the customers.
Conditions, Percentages, & Key Points
While taking a loan for your car, make sure that you have already a specific amount saved for the rainy days
If you put down more deposit, the amount of interest you get on the auto loan can decrease
The loaned amount from a bank cannot be set on your terms. Only private lenders let you set a payment period of your choice.
Private lender loan:
Banks are not the only lenders in the market. You can also get loans for your car from private lenders. These lenders are available with the car dealers.
Your car dealer can also act as a broker between you and the private-party auto loan lenders. These private parties will send you their quotes (the terms they set for lending the payment). You can either accept or reject them.
When getting a loan from private lenders, you have more liberty to set the payment period and the payment amount as per your choice.
Conditions, Percentages, & Key Points
Private loan parties will first check your credit rating. The rates are usually based on your credit rating, your area of residence, the term of your loaned amount, and the type of car you intend to purchase.
Private-party loans are usually by either individuals, hedge fund companies, or even online lenders. Talking of online lenders, you can buy a car with bitcoin loans. There are many companies offering auto loans in bitcoins, and the interest rates they offer are a lot lower than banks.
Most private lending companies are open to funding any vehicle you intend to purchase. But in some cases, they can impose restrictions on the type of vehicle a person can buy. These restrictions can be on the age of the vehicle, its mileage, and other similar factors.
The more duration you set for returning the amount, the higher the percentage of loaned amount will be. Let’s say you want to set the payment duration to six years from two years. So, the interest on the total payment will rise from 6% to 12% (amount can vary from one lender to the other).
Which auto loan is safe?
Bank loans are more preferred among individuals because they are from a reliable source.
These loans are also governed by government institutions such as the Federal Reserve in the US.
Moreover, banks usually don’t keep the car as collateral if you default on your loan. If such a thing happens even, the bank will forward your case to a debt collection agency.
If the debt collection agency fails, the case can land in the county court. From there, your car can be collected for payment to the bank, or some other asset that belongs to you may get liquidated.
However, when it comes to third party private lenders, you sign an agreement that clearly states that the private-party lenders can collect your car in case you default on your payments.
Most private-party lenders are not bound to follow the state laws since the matter is private, and both parties agreed to settle it by themselves. However, these private lenders cannot physically harass or threaten you. The most they can do is to assign a debt collection agency to collect their payment – similar to a bank. From there, the case can either land in a court or you will pay your defaulted amount.
Bottom line
While deciding on a car loan is difficult, our advice is to compare multiple options available to you and then settle for the one that offers the most advantages to you.
