If you are thinking about purchasing your next car but cannot afford to do so out of pocket, then a car loan might be a great option for you. Whether you are looking for a new or used car, you can get it financed with borrowed money. Loans are commonly sought from banks, credit unions and car dealerships. You might want to understand the difference between the different car loan options available. Let’s look at five car loans that could help you make a decision about financing a car.
Dealer Purchase Car Loans
Car dealers are a source of vehicle financing and can serve as a one-stop shop for both vehicle and financing. Car dealerships typically have some kind of financial arrangement with various lending companies, which is beneficial to helping you get a car loan with much more ease. This scenario limits your ability to shop around and compare interest rates and the terms of lenders because it’s a “take it or leave it offer.” There is no real room for negotiations on an interest rate. Having a perfect credit history can be advantageous in getting low- or zero-interest car loans, something that is frequently advertised by car dealerships.
Lease Buyout Car Loans
A lease buyout auto loan is one in which a financial institution is the lender, providing you with the money to purchase the car that you’ve been leasing once the lease term has expired. Lease buyout is not a bad option, partly because you get the chance to become familiar with the car, so you are already aware of any car maintenance issues. You don’t have to worry about a vehicle history report because you have been the driver before the buyout and you know how the car runs. Furthermore, you avoid any penalties for damage and exceeding you mileage limit.
If seeking a car loan, a standard loan from institutions like banks and credit unions is also an option. You can borrow money from these lenders to purchase either a new or used car. In this instance, having a stellar credit history would make the process much smoother for you to get approval for a loan. The biggest drawback of a standard loan is that it generally comes with higher interest rates.
Secured Auto Loan
A secured auto loan is one that is guaranteed by a lien on the underlying asset —the vehicle. In other words, the loan is protected by the vehicle, which is used as the collateral. If you fail to make your payments, the lender can legally seize or repossess your car. The lien on the car is removed when the loan is paid off, removing any threat of repossession. There is less risk for the lender with a secured auto loan, and as a result, you may find that the car loan interest rate is lower.
Private Party Auto Loan
This type of loan is designed for individuals who plan on purchasing a car from a private seller, wherein a lender loans you the money to buy the car. You select the car before financing, and after approval of the loan, the lender typically pays the seller or lienholder the amount you owe. You are responsible for repaying the lender, with interest, according to the terms of the loan. You may have some room to negotiate the interest rate.
It is important to shop around if you are interested in obtaining an auto loan. You may find that one type of loan is best suited to your needs when compared to others. Ultimately, you want the best auto loan deal you can find to purchase your car.