People buy cars for a number of reasons, and the general rule is that the better quality vehicle you purchase, the more likely it will be to retain its value. But how do you purchase your dream car if you don’t have the money on hand to do so?
You could always take out a car loan. Car loans are offered by banks and finance companies; normally for between two and five years, with monthly repayments deducted directly from your bank account. You will probably have to pay a higher interest rate than you would on, say, a home loan or personal loan as the car is the collateral for the debt.
Some of those who already own their own homes but worry about being able to keep up with mortgage repayments during times of unemployment or if rates rise may prefer to use their homes as collateral for a car loan, especially if they have a high equity position.
How do you choose between a secured and an unsecured loan?
For those with a perfect credit record, an unsecured loan is going to be easier to obtain but at a higher interest rate. For those with a history of defaults or bad debts, then secured loans will be their only option. Secured loans are normally used for new cars, whereas unsecured loans are used for older and used cars.
What should I look out for when applying for a car loan?
There’s a number of things you should look out for, and questions you should ask, when it comes to applying for car loans:
- What is the interest rate and what are the fees?
- How much of a deposit do I need to put down and how long does it take for this money to become available?
- Can I salary sacrifice or offset my loan repayments?
- Is there an early repayment penalty if I want to pay the loan off early?
Assessing your loan options
If you have a long-established credit history, then you may find that there are dozens of car loan options available to you. However, if you’re at the other end of the spectrum and have never taken out a loan before, then your options become more limited.
Make sure you check out if there are any car finance options specific to your city, for example you could look for Perth car loans with Driva.
The type of car loan that’s right for you normally depends on how much you’re willing to spend and how long you want the loan for. For example, if you’re looking at a newer model car that costs between $20,000 and $30,000 then an unsecured personal or home equity loan may be your best option; otherwise a secured car loan is more likely to suit your needs.
If you choose a home equity loan, bear in mind that the interest rates and other charges may be tax deductible.