A car loan allows you to purchase a vehicle that is more costly than you can afford in cash. A strong understanding of car loans may help you avoid financial potholes. If you are on the lookout for a solution that is ideal for you and you are trying to understand all the different options keep on reading as we list out and talk about your options in-depth.
A car loan is a type of finance that is used to acquire a vehicle.
Instead of paying cash for the automobile, you borrow money from lenders and repay it with interest over a certain period, often in monthly installments that are set up in such a way and catered per your salary and income. The great thing about applying for affordable car loans is that even if you have a bad credit history, you can still be eligible for car loan deals.
Before applying for car finance, it’s crucial to master the basics so you can effectively negotiate the best finance deal and keep on top of your finances.
5 Different Types Of Car Loans
There are two types of car finance: secured car loans and unsecured personal loans. Your new car is used as collateral in a secured vehicle finance transaction.
If you don’t make the agreed payments, the lender has the power to seize and sell the car you pledged.
An unsecured loan does not need you to put your car up as collateral.
This, however, raises the risk that the lender would not receive their money back. To compensate for the increased risk, your vehicle loan will have a higher interest rate.
Depending on the purpose and circumstances, a car loan can be divided into numerous categories, more on that down below!
1. Chattel Mortgage
This is a type of financing for vehicles or any other moving asset that will solely be used for business reasons.
The lender provides finance to the borrower to buy a car and secures the loan with a mortgage on the car. The lender takes a ‘mortgage’ over the vehicle as security for the loan. Once the contract is completed you’ll own the vehicle outright.
2. Novated Lease
It’s a form of financing that’s used in tandem with a salary package.
It simply involves your company deducting pre-tax and post-tax payroll deductions from your revenue envelope to cover car lease and operating costs. With a novated lease, you don’t pay GST on the purchase price of a new car. It can actually save you a lot of money.
3. Personal Car Loan
This is a type of personal loan used to buy a car regularly and is a safe go-to by most people. It can be a secured car loan or an unsecured loan, but most borrowers use their vehicle as collateral to get reduced interest rates and better terms.
Unlike other car payment plans, you will not be required to use your vehicle for a specific purpose. The loan will not be guaranteed by a third party.
4. Finance Lease
This option is available to both individuals and businesses, and it entails the lender purchasing the new vehicle and leasing it to you, the borrower.
In exchange for monthly rental payments, you can use the car right away with little or no capital expenditure.
You’re also in charge of the vehicle’s upkeep. At the end of the lease agreement, you have the option of refinancing, returning, or purchasing the vehicle for its residual value. Personal loans can be used for almost any large expense.
5. Operating Lease
An operating lease is a contract that permits the use of an asset without transferring the ownership rights of said asset. This operates in a similar way to a financing lease, in which the lender buys the car and then leases it to you, the borrower.
The lender, meanwhile, remains the owner of the vehicle and is responsible for its maintenance.
You will not be exposed to the dangers of ownership and you will not be liable for any residual value.
5 Great Reasons To Get A Car Loan Today
1. Future Savings
You might be tempted to buy a used car to avoid taking out a loan.
However, in the long term, this is not always the most cost-effective option nor a solution that can work for you. Used cars have a higher chance of breaking down and requiring costly maintenance, which can add-up.
When you finance a new car, you know you won’t have to worry about repairs for a long time. Not to mention that many newer vehicles are more fuel-efficient, which means cheaper gas prices.
2. No Collateral Needed
You theoretically don’t need any collateral to secure a loan. This is because your vehicle will immediately serve as security for the loan, making the action and purchase justified.
If you do not pay your outstanding balance, the lender will confiscate your vehicle, which is why you should keep your finances in check and pay regularly.
3. Good For Credit History
Even with terrible credit, you should be capable of obtaining a vehicle loan. This rule applies to most places and cities worldwide.
The amazing thing about loan repayments is that they may improve your credit score if you keep up with the deadlines.
4. Increased Value
Car finance options nowadays are frequently accompanied by extras of some sort. Free road tax, free servicing, and free fuel are common perks offered by auto loan lenders.
These incentives aren’t the ideal reason to take out loans, but they certainly help!
5. Improved Budgeting
You get to choose how much money you pay each month once you’ve agreed on a car loan. This means you won’t have to cut corners elsewhere in your life or overpay.
You could even have enough money left over after paying off your car loan with an affordable car loan to start saving for your next new vehicle. The sooner you start and prioritize your options, the better it is for you.
Want To Get A Car Loan?
If you want to get a loan and start your car shopping journey and driving journey as soon as possible, we advise that you check out c1carloans.com.au! Simply click on ‘Apply Now’ to submit an application in minutes. They will assess your application and look through your credit reports. Once everything checks out you will be a ride away! Go for premium, standard, or lite loans. Go for a loan of $10,000-$25,000 and choose loan duration from 24 and up to 60 months! Their team will help you make a decision that is right for you + will answer all of your questions in case there are any.