Buying a new car? What are your loan options?
When you think of purchasing a new car, the chances are that you may not have the money to pay for it straight away, so an auto loan becomes a necessity, especially if you need to commute to work. With just a little bit of research, you should be able to figure out what type of auto loan will work out best for you. Be smart about comparing rates and definitely check out loans with as many lenders as possible for a good bargain.
The first kind of auto loan and the most common is a loan that has a fixed interest rate. This necessarily means that your interest rate will not change over the entire period of the loan, and you will be protected from any hikes in interest rates during the term.
A variable-rate loan leaves you vulnerable and you may have to accept interest-rate risk, but it usually has a lower current interest rate compared to a five-year fixed-rate loan. Variable-rate auto loans will be based on the prime lending rate prevailing at the time.
A long term loan is usually only offered when you buy a brand new car, and usually lasts for thirty six, forty eight, or sixty months. This type of loan involves a smaller monthly payment, but you end up paying more over the term of the loan. One problem with a long term loan is that, the value of your vehicle may drop well below what you actually having left to pay on the loan.
A short term car loan involves a higher monthly payment, but over the course of the loan you end up paying less. On a short term car loan, you will more often than not, be offered a lower rate of interest than what was available with the long term auto finance.
You can get a home equity car loan, by offering up your home as collateral. Normally, this type of car loan carries a higher rate of interest, but there are also some tax advantages available, that can offset the higher rate of interest.