How to Pick the Best Car Loan for you
If you need to buy a new car, but do not have the money to buy it, then you may need to look around for a loan. There are many different types of loans that you can use and it is worth knowing a bit about them and comparing them in order to find out which one will be the most suitable for you. A few examples are explained below.
Car loan from garage
When you buy a car from a dealer, whether a manufacturer or independent dealer they may have a finance scheme that you can use. It is worth checking these out very carefully as they can be expensive. Compare the rates with a bank and see whether they are dearer. You may find that some seem very cheap or even interest free, but it is worth making sure that you are aware of all costs. There may be fees for setting up the loan or very high costs if you miss a repayment. So make sure that you are not just tempted by the interest rate but that you look into all of the details. This is true of all loans, whether from a dealer or not so you need to be careful whatever type of loan you are looking at.
If you go to a lender for a personal loan it could be cheaper for you. This will especially be true if you have some collateral to offer against the loan, especially if you have bad credit such as the car or your home. Although there is then a risk that you might lose the item if you do not keep up with the repayments, it will keep the cost down. Personal loans vary a lot between lenders and so the price will vary too. Also if you have a favourable credit record then you could get offered a better rate compared to someone without such a good record. If you compare the advertised loan rates and do not have a good credit record, you could find that you will not be offered such a good rate.
An authorised overdraft is not usually that big although an unauthorised overdraft can give you more money. If you are only buying a cheap car, then you may find that you have enough money to be able to pay for it this way. However, it is worth bearing in mind that an unauthorised overdraft can be one of the dearest ways to borrow money as you tend to get charged fees as well as interest. Unless you are sure that you can pay it back really quickly or you have no other option, then this is probably an option well worth avoiding.
A credit card can be a good way to pay for a car, particularly if you have an interest free card. Do be careful though as car dealers will often charge extra money if you pay by credit card. Ask them first to find out and then you can decide whether you think that it is worth it or not. Of course, when you pay with a credit card you will get a certain amount of time when you will not have to pay any interest. However, after a while you will get a bill and you will be able to see how much interest you will have to pay if you do not repay all of the money that you borrowed. This charge on a credit card can be quite high compared with a loan. It is worth finding out how much it will be and working out whether it will be better for you to look at an alternative option.
As you can see all loans can be expensive although some could be cheaper than others. Once you have a loan it is wise to keep looking around for cheaper options as you could pay off one loan with another and save money, but they could be penalties associated with paying loans off early so you will need to check this out as well.
A better solution altogether could be to not get a loan at all but to save up the money for a car. This is not always possible, if your current car is no longer drivable but, if your current car is still good enough to drive, then it could be wise to just keep it for a bit longer and save up some money. Even if you only save part of the cost of a new car it will mean that you will not need to borrow so much money and therefore the loan will be cheaper. Try to put aside at least the amount that you would be repaying on a loan each month, as you would have had to find that money anyway. If you can save even more, then that is even better and it may not even take that long before you have enough to buy a car outright.