Everything You Need To Know About Car Finance
Cars don’t exactly come cheap. According to an estimate by the Federal Trade Commission, the average price of a new vehicle is around $28,000 and that of a used vehicle is $15,000. Quite obviously, you will have to look for finance options before you can even think of buying a car. In most situations, you will end up taking a loan from a bank or entering into a deal with the car dealer directly. In either case, you must be aware of the basic tenets of the entire procedure.
How does car finance work?
Once you are certain about the car you want to buy, you should start looking for different car dealers. Contact the dealers in your neighborhood and compare the price they are willing to offer. With this information, you can also start gathering information from different banks about the rates they charge for car loans. Alternatively, if you wish to finance your car through a financial contract with the car dealer directly, you should start comparing their offers as well.
In case you go with the bank option, you will be required to fill a few forms and furnish some documents. Based on this information, the bank will get back to you with their proposed rate of interest. This figure depends on a variety of factors like the amount of money being borrowed, the car you plan to buy and most importantly, your credit history. If you have a bad credit history, the bank might even reject your car finance application.
After receiving bank approval, you will need to repay the loan in monthly installments known as EMIs. Again, the EMI can vary according to the rate of interest, the amount and the duration of the loan. Additionally, it also depends on the method of calculating interest- flat rate or reducing balance. In the former case, the interest is calculated on the same principal amount which was borrowed initially.
However, in case of the reducing balance methodology, the principal amount keeps decreasing as you pay back parts of the loan. Before you finalize on a bank, make sure that you discuss the method adopted by them. In normal circumstances, you won’t need a guarantor for your car loan. However, if your income does not meet the credit limit, you might need to produce the name of an employed relative or friend as a guarantor.
On the contrary, if you decide to get dealership loans, things might be more convenient for you. Having said that, the rates of interest offered by dealers remain on the higher side and there are a lot of last minute add-ons which increase the final interest rate. Be prepared for all these complications if you choose dealership loans over bank loans.
Finally, the insurance policy for your car will be drafted and the premium will be added to your monthly EMI. This should be the final step before you get to drive your car home. Throughout the procedure, make sure that you do your research before taking any crucial decisions. Buying a new car is a major decision and you should have all the necessary information regarding its many aspects.
Mark needed a car finance and found the team of finance experts at Get Approved to be very helpful.