What You Should Know Before Applying For A Car Loan

When you want to apply for a car loan, you should work out your budget and know what you’ll be expected to pay back in Monthly, Fortnightly or Weekly repayments. Also, before you go to look for your new car, make sure you already know the type of loan you would like to take out for that car. Get a loan that comes with affordable interest rates, low fees and most of all flexible repayment options.

What type of car loan should you choose?

There are generally two types of car loans you can choose: secured and unsecured car loans.

With a secured car loan, the borrower puts the car as security for the loan until is fully paid out. If he defaults on his payments, the lender can repossess the car and sell it to recover his money.

With an unsecured loan, the borrower does not have to provide any form of security for the loan. An unsecured loan typically comes at higher interest rates than a comparable secured loan.

What term suits you?

Car loans are usually given for terms ranging between 1 to 7 years. If you choose to pay the loan in one year, your instalments will be considerably higher but the interest expenses will be low. On the other hand, extending your repayment period will accord you lower instalments but the interest cost will be higher.

Ensure that the loan is flexible enough for your situation such that emergency situations will not disrupt the payment schedule.

Interest Rate

Banks use different criteria when determining the interest rates to offers. The main considerations are your credit worthiness and the type of loan you are taking. Lower interest rates are given to those who are more credit worthy as they are not likely to default on their payments.

Rates are not fixed and you can negotiate further with the lender. This is one of the advantages of arranging for your own loan to buy the car. The car yard dealer may offer you a loan at a much higher interest rate than you could get if you arranged for your own loan.

Most lenders offer variable interest or fixed interest loans. Both options have their pros and cons. Consider anticipated market fluctuations in the interest rates and the term of the loan before choosing.

What fees are you liable to pay?

Car loans come with a number of fees that may vary from lender to lender. Contact your lender to know the exact fees you will be required to pay. The common types of fees include:

a) Establishment Fee-A fee charge to establish the loan. This is usually added o the loan amount.
b) Ongoing Fees-This is usually a monthly or account keeping fee.
c) Early Exit Fees-If you exit the loan early, you are likely to be charged a fee by the lender to ensure their profit for establishing the loan.
d) Late Payment Fees-You will be penalised for making later payments.

How do you apply for a car loan?

When you apply for a car loan, the lender will ask for your personal and financial details in order to make an initial assessment. This will enable them know whether you qualify for a loan and how much they can safely lend you. The assessment takes a short time, usually 10 to 15 minutes, and can be done online.

Lenders use a computerised process to determine how much you can afford to repay. If you qualify for a loan, you will be informed and the next stage will be to prove the information that you provided.

What documents will the lender require?

Before your loan is approved, you will have to provide proof of identity, residence, assets, liabilities and employments and income level.

The level of proof required varies across lenders. Some of the common documents that are acceptable include a passport, driver’s license, birth certificate, phone bills, rates notice, employment contracts showing the time and level of income with an employer, ATM cards, rental agreements, pay slips and others.

You may also be required to provide statements from your managed funds, banks accounts, term deposits, personal loans, credit cards, mortgage and others. Contact the lender and ask for the specific documents that are accepted as proof.

Personal Loans Offer Many Financial Solutions

Don J has decided to move his growing family from the two-bedroom apartment they’ve occupied for the last couple of years into a three-bedroom home. However, he’s not yet prepared to purchase a home outright so he begins looking into the “rent-to-buy” situation. Don then decides that in order for this plan to work, he could use extra cash to supplement the family income while in the initial period.

Over the years, Susan M has acquired a significant amount of debt for various purchases (home renovations, new car, furthering her education) and now she makes numerous separate payments each month. It occurs to her that if she could consolidate these payments into one, it would be considerably easier for her to manage her finances.

Fred G’s wife recently underwent emergency surgery for a serious medical condition. Fortunately the surgery went well but Fred now has to figure out how they’re going to pay the enormous medical bill that’s now part of their current expenses.

Above are three scenarios in which consideration of a personal loan could be the appropriate thing to do. Currently, loans of all types exist which could be the answer to many dilemmas, as long as the borrower keeps in mind that provisions must be made to repay these loans. Once this fact is fully understood, Loan Calculator Australia can show how a personal loan could be the answer to acquiring the financial freedom and flexibility to accomplish one’s goals or resolve one’s problems.

For all personal loans, there are standard terms that are decided upon by the lender and agreed to by the borrower regarding the loan chosen:

Secured or Unsecured Loan

A secured personal loan attaches a particular asset of the borrower’s as collateral that will be claimed by the lender in the event of loan default. A secured loan is cheaper than an unsecured loan because the lender has more of a guarantee of receiving something for the loan in the event it’s not repaid. With an unsecured loan, the lender is left with nothing if the customer does not repay; therefore, the lender charges higher fees and interest rates for this type of loan.

Fixed or Variable Rate Loans

Variable, or adjustable, rate loans are loans with interest rates that fluctuate periodically according to overall financial marketing factors, resulting in varying payments during the loan period for the customer. When marketing factors dictate lower interest rates, lower payments for the borrower will be the result. Conversely, a negative impact could result when the interest rates begin to climb, increasing the payments due. Another advantage of a variable rate loan is early repayment is allowed without prepayment penalties.

A fixed rate loan locks in a designated payment amount and this amount paid by the customer remains the same for the life of the loan no matter what changes occur with the overall interest rate. This allows for easier budget planning, but it restricts the customer from paying off the loan early without being subject to prepayment penalties.

Pre-Approved Loans

The lender does its credit checks and income verifications prior to offering the loan which helps them to decide whether to pre-approve a loan for certain customers. While receiving a pre-approved loan offer is an indication that the lender is considering the borrower’s eligibility for a loan, it doesn’t guarantee that the loan will be approved. The lender will do a thorough check on the borrower’s credit history before authorizing a loan.

Debt Consolidation Loans
Debt consolidation loans can simplify life by granting one loan to pay off multiple loans, leaving a person with a single loan to repay.