Choosing the Right Car Loan for Your Second Family Vehicle
Are you thinking about buying a second family car through a car loan?
Choosing the right car loan for your needs may be a daunting task as lenders generally offer various vehicle finance optionsto accommodate the needs of different borrowers. Therefore, it is crucial to understand the various types of car loans and what to expect from them before making your final choice.
Below are different types of loans that could be an option for your second family car:
Secured Vs unsecured car loan
The terms secured and unsecured car loans must be familiar if you have already started hunting for your car loan. Lenders usually grant secured loans for the purchase of valuables such as cars and equipment.
With secured loans, the asset wanting to be purchased is used as loan security. Therefore, the lender has a right to confiscate the bought asset in case the borrower fails to repay the loan as agreed.
Unsecured loans require no security. Therefore, the lender will be at risk of incurring losses in case the borrower does not honour their loan repayment agreement.
This type of loan, therefore, comes with a high-interest rate.
Unlike consumer loans, a chattel mortgage is business-oriented and therefore, the car has to be used for business purposes.
A chattel mortgage might be the perfect car loan for you as it comes with lower interest rates as compared to consumer loans.
Getting a chattel mortgage is easy as you do not have to prove your income to qualify for the loan. Also, getting this type of loan requires little documentation as compared to most car loans available.
Fixed Vs variable car loans
With fixed-rate car loans, the interest rate does not change throughout the life of the loan.
Variable car loans, on the other hand, can vary over time, depending on the index or prime rate. The interest rates of variable car loans can get higher or lower by the month.
With a varying interest rate, it can make it hard to budget as your repayment amounts change.
Variable car loans are riskier compared to fixed loans. However, it could be the best car loan if the prediction is that interest rates will decrease.
Bank Vs peer to peer car loans
There are numerous types of lenders out there, starting from banks, to financial institutions, all the way to peer-to-peer lenders.
These various types of lenders offer loans under varying conditions and interest rates. Therefore, you must take your time to find a lender that suits your needs.
To get a bank loan, you have to have a bank account with them. Banks usually offer high-interest rates as compared to many other lending institutions. Other investors fund peer to peer lending.
New Vs used car loans
New car loans are strictly given to borrowers intending to buy brand new cars. However, some lenders can consider borrowers planning to purchase cars that are maybe one or two years old.
Used car loans, on the other hand, are issued to borrowers who cannot qualify for new car loans because of the age of the vehicle.
These types of lenders deal with borrowers intending to buy cars that are over three years old.
Indirect Vs direct car loans
With direct car loans, lenders offer borrowers loans to buy their cars from dealerships. This type of car loan allows borrowers to get pre-approved for loans even before shopping for a vehicle.
For direct car loans, a dealership organises for a buyer to get a car loan from a prospective lender. Direct car loans involve a middle man and thus higher interest rates compared to indirect car loans.