Many people dream of a new car. But not everyone is able to buy the brand and model they like without taking payday loans Kankakee IL. In this article, you will learn how to buy a car on credit, what types of loans exist, and what nuances should be considered when contacting a lender.
How profitable is it to get a personal loan for buying a car?
Not everyone can afford to buy a car without using borrowed funds. For such situations, there are two types of lending – auto loans and personal loans. First of all, you should decide which one will be more beneficial for you. To do this, you need to analyze the and terms and conditions of both offers and then choose the most suitable one for your purposes.
Benefits of personal lending
A loan offered by a bank for the purchase of various goods, including cars, is called a personal loan. In this case, you can get a deferred payment for the purchased product or cash for its purchase. There are two types of such lending – targeted and non-targeted loans. In the second case, the lender gives available funds to you (usually using credit cards), which you can later spend on your own needs.
If you are thinking about how to get an auto loan, then keep in mind the main advantage of personal lending is that you do not need to purchase a car insurance policy. And this, in turn, allows you to save about 15% of its cost. Some car dealerships offer bonuses or discounts to buyers who purchase vehicles for cash. And if you have money for your own needs, you are not bound by the need to buy a car at a particular car dealership or from a particular dealer.
Another advantage of many personal loans is that there is no need to secure them. This saves the money required for the legal registration of the property appraisal, reduces time and emotional costs. Even if the terms of lending require collateral, there is a high probability that the bank will provide more favorable terms (for example, a decrease in the interest rate). Another advantage of this type of loan is minimum paperwork required for its registration.
The lending terms of personal loans may vary. Such loans can be short-term, medium-term, long-term, depending on the agreement between the borrower and the lender. In addition to banks, other financial institutions (such as microcredit institutions) have the right to provide such loans. You can find the best offers via KCFEFCU.com.
By taking an auto loan, the buyer avoids the risk of its rise in price in the future, discontinuation of production. When applying for this type of loan, clients are interested in buying goods here and now. Favorable lending terms will allow you to pay off the debt to the lender by making small monthly payments. The repayment schedule can be either annuity or differentiated. If you have a choice, you’d better choose the second option since it is more profitable.
Pitfalls of personal loans
The most important disadvantage of personal loans is the increased interest rate and the need for surety. Quite often, banks do not provide complete information regarding interest on borrowed funds. You can often face a situation where a loan is offered at 10% per annum, but in reality, the total overpayment is 35%. Therefore, clients need to calculate the effective loan rate on their own.
As for the need to provide guarantors, an auto loan would be a more profitable option. In order to get a large personal loan from a bank, you will need one or even two guarantors.
Since personal loans are widespread and affordable, the proposed loan size will not be too large. In this case, banks assume that the client needs money to buy personal things or not too expensive household and other appliances, and the required amount may not be available. A larger loan will have to be additionally substantiated, confirming your solvency with various certificates and documents. It will be almost impossible for officially unemployed or pensioners to buy a car on credit in this way.
Auto loan advantages
The main advantage of auto loans is a lower interest rate in comparison with a personal loan. In addition, there are numerous programs that offer more favorable conditions for buying a car on credit. In addition, in this case, they offer to take a loan not only for a vehicle itself borrowed but also for the insurance policy and auto parts.
The minimum interest rate on a car loan is primarily due to the lower probability of non-repayment of funds in comparison with personal loans. Fewer risks are associated with the receipt of funds not by the borrower but by the car dealer, as well as with the mandatory pledge of the purchased car. In some cases, there are special targeted programs, according to which the interest rate is partially compensated to the bank by the vehicle manufacturer or the state.
When thinking about how to take an auto loan, keep in mind that such loans have certain disadvantages. First of all, most banks require high-quality car alarm and mechanical anti-theft devices. And this condition must be met even before the vehicle leaves the car dealership. That is, you will have to entrust the operation to official dealers, and the cost of their services will be 1,5 times higher than the average price for similar services in other companies.
In addition, if you think about buying a car on credit, be prepared to service your vehicle exclusively from an authorized dealer. Otherwise, the car loan rate will increase significantly.
Well, do not forget about the prerequisite for getting a car loan – the purchase of a car insurance policy. When applying for a policy to an insurance company cooperating with a bank, be prepared to overpay it. If you decide to insure a car in a third-party organization, the interest rate will increase, approaching the rate for a regular personal loan.
In fact, car insurance is voluntary. However, if you apply to a bank for a car loan, it is included in the mandatory terms of the agreement. This is due to the fact that your vehicle serves as collateral, which means it must be secured in any case.
Insurance and the interest rate on a loan are closely related. Banks are not empowered to force customers to purchase insurance. However, in this case, they can give you money at a higher percentage, justifying this decision with their doubts about the repayment of the loan in case of damage or loss of the car. If you decide to take an auto loan, then keep in mind that your vehicle will be pledged by the bank, respectively, you will not be able to dispose of it (sell, rent, etc.) without obtaining its consent. In addition, the cost of the car will be much higher than when buying it with your own funds due to the overpayment of interest. However, you will become the happy owner of the desired car right now, and not in the future when you will be able to save up the required amount.
Despite this, car loans are in high demand among the population. Statistics show that in 2020, about 600 thousand Americans applied to banks for this type of loan. Compared to 2019, the number of loan agreements increased by 42.5%, while the volume of lending increased by 52.5%. The amount of borrowed funds requested continues to grow. Basically, consumers aged 30–39 years applied for this banking product.
Today, along with traditional car loans, lending organizations offer buy-back car loans with a residual payment.
The main difference between this type of loan is the small monthly amounts paid during the first three years. After three years, the residual payment increases and must be repaid in a lump sum. Otherwise, the car is returned to the car dealership, which sells it and pays the bank with the proceeds from the sale.
Such a program attracts consumers as they need to make small monthly payments. Of course, at the end of the grace period, there remains a fairly large balance of debt, but it will need to be repaid only after three years. And during this time, the financial situation may change and you may be able to repay the debt early. When applying for this banking product, you either assume that you will pay the debt gradually or you will hand over the car in order to purchase a new one on similar conditions.
Yes, this seems as if you are trapped in a never-ending debt. However, many consumers are accustomed to this state of affairs, loans are not a big burden for them. And if a person does not initially have the intention of fully repaying the loan, then such a form of car loan can be considered as an option for a long-term car rental. Of course, overpayment on interest cannot be avoided, but today few people can be frightened by such a prospect. In any case, a person does not lose a vehicle. If you fail to fulfill your obligations to the bank, then you can always buy a car on credit using the same conditions.
Is it worth taking an auto loan to buy a used car?
If your income is not high enough but you want to become a car owner, you can buy a used car on credit.
In order to protect yourself as much as possible, you should contact large, proven salons.
The reliability of the salon is evidenced by a large number of vehicles on its territory (not only new but also used). This confirms the financial stability of the salon, as well as the trust of customers who rent out their used cars for a commission.
The conditions of such car dealerships contribute to the safe purchase of a car on credit. These include:
- protected area;
- the ability to check documents on the car by an expert forensic scientist right in the salon;
- the ability to carry out financial settlements in a safe environment;
- the ability to carry out diagnostics of a used car in the service at a car dealership;
- storage of documents confirming the purchase and sale of a car for 5 years.
Please note that diagnostics of the technical condition of the car in the salon service is not a prerequisite for the transaction but depends on the wishes of the buyer.
A car dealership that values its reputation strives to respect the rights of buyers and provide them with complete and reliable information regarding the chosen used car.
When buying a used car in the showroom of an authorized dealer, the following situations are likely to occur:
- You will be assured that the vehicle is in perfect condition;
- You will be told that the warranty expired just yesterday;
- You will be convinced that all the additional options are available in the selected vehicle.