What differentiates a car loan from any other type of private loan?
Not much, actually.
The most notable difference between a private loan and a car loan is that the car loan is always secured against the vehicle purchased, while the private loan may or may not be protected by an asset.
Auto loans are short-term loans, money for your car. Normally, they last something like 2-5 years, but this can extend to a maximum of 7 years. Generally, interest rates for auto loans are around 0-10% per year.
Should you rent or finance your vehicle?
The rental option is generally available for new vehicles, but this is not always the case. On the other hand, if renting a new vehicle will cost you the same thing as financing it, it’s not worth it. Most people buy new cars every 4-5 years, so renting could be a good alternative. The acquisition of a new vehicle comes with several guarantees, which reduces maintenance costs. The only problem is the annual mileage limit that is attached to the rental vehicles; if you drive long distances, renting is not the right option.
Who offers auto loans?
Auto loans are available at new car dealers, used car dealers, used car dealers, unconventional lending institutions, private lenders, and in some cases even some banks.
Several used car dealers work directly with banks to finance customers. Sometimes banks pay auto dealers directly when a vehicle is purchased and require the customer to repay the loan to the respective bank, which relieves the merchant of any financial obligation.
On the other hand, new car dealers sometimes manage their own rental. For example, Volkswagen has its financial branch VW Finance which deals with financing the purchase of new or used cars.
Many people are looking for financing from private lenders to get their new car. Since the loan is secured by an asset (the car), what happens, in this case, is that the title of the car is transferred to the lender until the loan is repaid. This is also known as “car loan title”.
Of course, if you get an unsecured private loan, you can use the money for anything you want, including buying a new vehicle. However, unsecured loans are modest and tend to be between only $ 500 and $ 5000, limiting your purchase options.
Good Credit vs. Bad Credit
A large number of used car dealers advertise car loans for bad credit. In fact, they sometimes advertise auto loans provided without any credit check. This is because most of the time these salespeople are looking for only two things: job stability and income. They are more interested in your ability to repay your loan than in your credit history.
Having a good credit will help you finance yourself with a low-interest rate, and increase your chances of being approved, however, note that this does not guarantee these potential benefits.