Buying a car is no longer a necessity but a
luxury and buying a luxury surely costs a lot. That’s where car loans can help
you.
Purchasing a car has now become a big milestone for the whole family. Many
people prefer making cash payments but there are times when you have to avail a
loan. Let us explore which option you can choose from for taking car loans.
Loan approval requires a routine check on your credit score, which is based off of your past loans or debts. If you have failed to pay on time in the past, there are high chances of your score being low. In such a scenario, finding a lender can become difficult.
Bank or other financial institutions
Here, you can apply for a loan which requires the process of documentation and a thorough credit score check. Once a loan is approved, you can use it to buy a new or used car. These loans come with fixed monthly instalments and can be either secured or unsecured. In case of missed payments, be prepared to pay some penalty or seizing of security.
The upside of taking a loan from standard loan options such as a bank or credit unions is that it comes with the flexibility of terms of repayment. Also, the interest charged on loan is low since finance is secured against the car you will be purchasing.
Financial lease
It’s a way of providing finance where the company buys asset on behalf of the hirer and rents it to them for an agreed period. Here, the financer buys the car which is then hired by the motorist. Such kind of a lease is beneficial when it comes to hiring a car for business purposes. The hirer pays a fix monthly rental of the car.
When in agreement, the maintenance and risk associated with the car is the responsibility of the motorist. Advantages of such a lease are that they give the hirer the right to use the asset and since it’s non-cancellable, the lessor investment is assured. But the disadvantage is that the lessor receives a fixed amount of rental every year which cannot be increased even if the cost of asset goes up.
Peer to Peer lending
In peer to peer lending, a lender and buyer share a common platform and indulge in the process of funds without any involvement of the third party. If you are looking for a car loan, all you have to do is apply, go through documentation and credit score check and if a lender is interested in your application, he will contact you.
The benefit of applying in such a loan process is that it comes with flexible terms and conditions with monthly payments decided upon by both the parties. It’s a revolutionised idea where taking loans are made easy. Many lenders do not frown upon low credit scores as well.
A three-way arrangement
In a three-way arrangement, a novated lease is based on the concept of salary sacrifice of the employee. Here, the employee leases the car directly from the financer, where they have to pay through a novated deed on the salary of the employee. The motorist has to cover all the costs like service, maintenance, insurance, fixing, etc.
The benefit of purchasing a car through such a lease is that the motorist can buy the car of its own choice at the end of the termination period. These can be used for both private as well as business purposes.
Commercial hire purchase
It’s a simple process where the financier buys the car and then rents it to the motorist over a fixed period. At the end of termination of the lease, the car is handed over to the motorist after the monthly rental gets paid off. The advantage of such a lease is that it comes with the flexibility of paying. You can pay it monthly or can pay amount at one go. Here, the interest rate and monthly instalments are fixed but can be modified, depending upon the consumer budget.
Operating lease
It’s a short term agreement where the financer rents the asset without any buy-out option. In this kind of a lease, the financer purchases the vehicle and has to maintain the risks and damages associated with the car. When this lease ends, the motorist has a choice to either buy or rent the car from the same or another financer.
Summing up
Buying a car doesn’t have to be difficult anymore. But before investing, check which car suits you and your family needs. If you consider taking a loan, it can help you maintain your budget. It is also great for your credit history. Since car loans are secured loans, security being the car itself, they come with low interest rate as compared to unsecured personal loans.
