A car loan refers to a personal loan that you use to buy a car. When you take a loan from a financial institution and use the money to get a car, that is a car loan. As a loanee, you agree with the lender to pay the total amount plus interest in monthly installments.
Car loans are secured as the car itself remains the collateral. The financial institution has the legal right to repossess and sell the vehicle to pay the loan if you default on the payment plan.
What to Consider Before Taking a Car Loan?
There are various things you need to consider before taking a car loan.
- INTEREST RATES
These are basic charges that you will pay for the amount loaned. A car loan has two rates; percentage rate per annum, representing charges involved with the amount issued. And also the usual interest rate. Before taking the loan, ensure you compare the interest rate with APR.
- COSTS OF LOAN
A car loan has two parts: principal, the actual price of the car, and interest, representing the amount that arises with time during the loan repayment period due to interest rate and principal amount. The car loan might also include fees such as title costs, taxes, delivery fees, and origination fees.
- DEPOSIT AMOUNT
The deposit is the initial amount you give when buying a car; trade-in can be done as a down payment. The initial deposit is calculated based on the percentage of the total amount. If you make a considerable deposit the less loan, you will have to borrow.
- LOAN TERMS AND CONDITIONS
There are various terms and conditions in a car loan, including repayment period, registration and insurance requirements, resale terms, and situations involving defaulting loan and repossession. Before signing car loan forms, ensure you read the terms and conditions keenly and understand them clearly.