The New Car Loan Explained: What Every Consumer Should Know About Getting a Car Loan
New Car Loan ;How can a car loan be the same as other loans? Well, the basic concept is same but the differences lie in the terms and conditions, interest rates, tenure and more.
For example, if you have an auto loan, you have to pay it for a fixed amount of time and if you miss a payment or make it late, your credit score will be affected and you may get penalised. On the other hand, when you go for a new car loan, your credit score does not get affected as there is no fixed period of time.
If you don’t know how much your car loan will cost and how much interest rate is attached with the loan, then you will feel stressed while applying for a car loan. But if you have the necessary knowledge of the car loan, then you will get a clear idea. Here is what you should know.
What is the new car loan
Basically, it is a kind of financing where the borrower pays for the purchase price of the vehicle at the time of applying for the loan. It is the most convenient way of getting a loan for a new car.
Who is eligible to get a new car loan?
Generally, anyone can take a new car loan. However, there are certain criteria for an individual to qualify for a new car loan.
• A borrower needs to be a citizen of the United Kingdom and has to be at least 21 years old
• He/she has to have a permanent job
• He/she needs to own a property that is valued at at least £20,000
• He/she has to have a bank account with an active checking account that is worth at least £2,500
• He/she needs to be a customer of a certain lender
Is the interest rate on a new car loan high?
Yes. It can be anywhere between 12%-25% per annum. But if you are willing to repay the loan on time, then it is an effective option.
How much will a car loan cost you?
Your monthly repayment is determined by the total amount that you borrow. This amount is known as the principal. The principal amount consists of three components;
• The down payment: The money that you have paid for the car
• The deposit amount: The money that you have put in your bank account for the car
• The interest amount: The percentage that you have to pay for the loan per annum
After you calculate the principal, you will have the final amount that you need to pay every month. This amount is called the instalment.
How is a new car loan different from a car loan?
There are some key differences between a new car loan and a conventional car loan.
• A conventional loan is a personal loan in which the borrower pays back the entire sum of the loan, without any interest
• On the other hand, a new car loan is a commercial loan. You have to pay the whole loan amount and will be asked
Car loans are the major source of funds for car owners, especially for young car buyers, who have just got their driving licenses. As a rule, this kind of loan is only given to young people, because they are less likely to default in their payments. However, there are some disadvantages of this type of loan too, which every consumer should know about.
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The first disadvantage is that interest rates on the car loans can be quite high. Young people are usually less experienced in the financial world than older consumers. Their parents are usually responsible for their monthly payments, and they will need to deal with higher interest rates. The second disadvantage is that even though you might get a lower monthly payment, you will pay much more in the long run.
Car loans are paid off in equal monthly installments, regardless of the length of the term. As a rule, the interest rate will be lower at the start of the loan period, but it will be much higher at the end. Even though the amount of money you will pay off is quite low in the beginning, you will end up paying a lot more at the end of the loan term.
Finally, car loans are short term, and you can usually extend them. However, they have fixed terms, which means that you will not be able to extend your term unless you can come up with some money. Moreover, the interest rate will increase after the initial fixed term period, and you will still be paying a lot more than you would have paid if you had financed the purchase yourself.
