If you want your dream car but without new don’t have enough money, you can save for it. Or you could buy a car right now with a car loan.
Most often, car loans are secured. It means until you repay the loan, the ownership belongs to the financial institution that issued the money. It may sound intimidating, but secured loans usually offer lower interest rates, so it’s worth it. Besides, you only risk losing your car if you do not repay the loan.
Otherwise, a traditional car loan is not much different from any other: you borrow the necessary amount, and then every month, you pay a part of the amount and interest according to the repayment schedule.
Note two important details:
- Interest rates are lower on new cars than on used cars.
- Regarding used cars – the older they are, the higher the rate will be. Even a car that is only a month old can be considered used.
When you take a traditional car loan, your monthly repayments depend on the loan amount, the annual percentage rate (APR), and the loan term. The lower the loan amount and the APR, the less you will pay. On the contrary, the longer the loan term, the smaller the monthly repayment.
There is another type of car loan – it is called a balloon loan. It is also a secured loan, but with a unique structure. Small payments characterize such loans for the first few years. At the end of the loan, you will need to make one large payment, amounting to thousands or even tens of thousands of dollars. When the loan “balloons,” you could make the large final payment, trade the car in for another without “one”, or sell it and pay off the loan.