Most of us find that when we need a new car, whether we buy a brand new on or a second hand one, we do not have the money available to pay for it. This is why there are car loans available to pay for cars. Many customers will just use the loan available from the garage that they are buying the car from. However, there are lots of different car loans available and it is good to be aware of what to look for in a car loan and where you can get them from so that you get the best possible deal.
How to Compare Car Loans
Interest rates – most of us know that the interest rate will help us to identify how expensive a loan is. When we use comparison websites to compare the prices of loans, it is interest rates that they are compared on. Interest rates do make a big difference to how much we pay for a loan. We will always have to repay what we borrow. However, we also have to pay a charge to the lender and part of this charge will be the interest that they charge. Some loans have fixed interest for the term of the loan or for some of the loan but many are variable. What this means is that the interest rate can change. Often when the Bank of England put up the base rates a lender will put up their rates as well. Some lenders will put up their rates at other times as well. However, you can only compare the rates at the current time and just hope that if you pick the one with the lowest rates, they will remain low while you have the loan.
Term of loan – the length of time that you have the loan for is called the term. As interest is calculated daily, it means that the longer you have the loan for, the more expensive it will be. Therefore if you take out a loan for a shorter time, then it will be cheaper. It is therefore worth making sure that you are aware of the amount of time that you will have the loan for so that you have an idea of how long you will be paying interest for.
Additional costs – sometimes loans have additional costs as well as the interest rates. They may have administration fees, for example, which you pay for setting up the loan. It may be that there are early repayment fees that you would have to pay if you want to repay the loan early. There will also be fees if you miss a repayment. It is good to find out about all of these before you choose which loan to take out as they could make a significant difference to the cost.
Total cost of loan – therefore it is wise to calculate the total cost of the loan. This will enable you to be able to know exactly what you will be paying. It is a much better way of working things out than just looking at the interest rate.
Repayment amounts – it is worth finding out how much you will be expected to repay each month. This could differ a lot depending on the cost of the loan and how many repayments there are. Although the loan will be more expensive if you have more repayments, because you will be paying interest for longer, it will be easier to manage each repayment. Therefore you need to consider which repayment amount ill suit you.
Where to get a Car Loan
Garage – it can be very easy just to get a car loan from the garage that you by the car. Most of them will be able to offer you some sort of credit deal and this will make it easier for you to afford a car that you do not have the money to buy. Garages can be expensive though, to borrow money from and so you should compare the price of the loan with other lending form banks and building societies. Even if they have interest free credit, it is worth being careful, you will need to check how long the interest free period lasts, how much it will cost after that and whether there are any additions costs as well as interest to pay. You may also find you pay extra for the car as a result of the interest free credit being on offer and a garage that does not offer it might be cheaper. It is therefore worth doing a bit of research.
Bank/building society – it can be possible to get a cheaper loan from a bank or building society but they do vary a lot. It is worth taking a look before you approach the garage so that you can compare the total costs of any loan they offer you to one form here.
Other – some people will borrow from friends and family or other ways. These might be cheaper and are with considering but having a more formal loan, could be easier, quicker and less stressful. Owing money to friends and family adds a layer of guilt to the loan which is not there with a bank or garage. There may be more pressure to repay it quickly, which may suit your budget and lifestyle.
It can be really handy to compare your options before taking out a loan. There are big differences between loan, both in cost and other factors. It is good to think about what you want form a loan and then look at the options to see which suits you. Too many of us are in a hurry to borrow money and do not look carefully enough at all of the options available before signing up to something. This can mean that we end up with a loan which is not the best for us.