Loans are used to finance a car. These loans are obtained from a lending institution to pay for the vehicle. Lenders grant loans hoping the borrower would return it after the agreed-upon pay-back period. They charge interests on these amounts borrowed.
There are a lot of loans that lending institutions are offering. The five common ways used to finance a car are enumerated below.
1. Straight Auto Loan
This is the most common car loan. In order to avail this, all you need is to approach the car dealers when you buy a new car. All you need is a good credit reputation, a down payment, and the means to pay the loan back.
The means to pay back the loan refers to your employment and other source of income. It is better for you to bring a proof of employment and valid IDs when you intend to apply for this loan.
2. Car Lease
A car lease is not a loan. This is a financial arrangement similar to renting a car. The difference is the agreement giving you a specific lease period. Monthly payments are paid in exchange for using the car. When the lease period ends, you should return the car to the dealer and exchange it for a new one with a new lease agreement. You can also buy the car you lease. The car costs cheaper and the dealer usually sell it 50% lower than its original price.
To avoid lease penalties, make sure that you fully understand the lease terms that you sign.
3. Auto Equity Loans
This kind of loan allows you to loan for a certain amount to pay for the car. The only difference is that the car serves as the collateral for the loan. This type of loan also takes houses as collaterals. The collateral gives the lender an assurance that you would pay the amount you owe.
This loan is actually beneficial but the risks are great. It is important for you to know your ability to pay the auto equity loan because you might lose your car or house if you fail to pay the borrowed amount.
4. Auto Refinance Loan
An auto refinance loan allows you to secure a loan from a second lender to pay the first loan. This loan also allows you to pay lower monthly payments to the second lender. This loan is open to those who were able to buy the new car but are struggling to pay the monthly payment for the vehicle.
5. Bad Credit Loan
This is the kind of loan suited for individuals with bad lower credit scores. Most lenders are willing to help those with bad credits. They help rebuild their credit rating by lending them money. These loans however go with higher monthly interests.