Auto Loan: Preparing For Your First Car
Buying a car is an exciting thing to do but it’s also a huge financial responsibility. It’s best to go into the car buying experience well equipped with the knowledge to make the best decisions for your financial future. The first thing you will need to do is figure out what type of auto loan you will need to get yourself a car.
The Different Types of Auto Loan Options
Just like every car is different so is the auto loan used to buy a car. Your specific financial situation will be the determining factor in qualifying you for a specific type of auto loan. This loan will be a financial commitment for many years and should be thought through wisely. You don’t want to be in worse financial standing after you get a car than you were before you had it.
Simple Loans vs. Pre-Computed
- Simple Loans
These are loans are the most common. These loans have fluctuating interest rates and allow you to potentially pay less money as you continue to reduce your principle amount. The more you pay on your principle, the less interest can accumulate, and the faster you’ll be able to completely pay for your car.
- Pre-Computed Loans
These are loans that have fixed interest rates from the start. These types of loans have very little upside if you’re looking to pay down your principle amount faster. No matter what you do you’ll never end up paying less than you have to, though you’ll also never be surprised by a changing interest rate.
Secured Loans vs. Unsecured Loans
- Secure Loans
This is a loan in which the borrower offers up a form of collateral in exchange for a loan to pay for a car. Collateral can be anything from your house, another car or the actual car you are in the process of getting. When you put something up as collateral, it means that your creditor can repossess this asset should you fall behind on your car payments. This might seem scary at first but a secured loan can secure you a very low interest rate, which could make it easier for you to make payments back to your creditor.
- Unsecure Loans
This is a slightly more common type of loan people can get. Instead of putting anything at risk for repossession, the lender would be forced to go after the borrower through other means. However, the downside is that due to the lack of collateral, interest rates are usually higher.
Nonetheless, you won’t have to worry about having any assets repossessed which can be a relief, but you will still be responsible for the debt should you fail to make payments on the car. Your creditor can get a judgment against you in the form of a wage garnishment or lien, in really bad cases in order to recover their funds.
Other Auto Loan Options
- Title Loans
This is an auto loan that you can get only if you have completely paid for a car you currently own. It’s a type of secured loan that has you put up your title for an amount of money to make a purchase. Normally it’s used for the purchase of another car but it can be used for anything else. As you might have guessed, the lender has the ability to repossess the car if payments are not timely.
- Lease Buy Out Loans
These are specialized loans that can be used to complete the purchase of a car that’s at the end of its lease. Many give car buyers an option to buy under a lease agreement. A lender can then offer the buyer a loan to help pay off the remaining amount after the lease is up. The borrower then pays off the lease and retains ownership over the car.
Make Sure Debt Doesn’t Stall Your Ride
One of the main factors that influence your ability to acquire an auto loan for a new car is your debt load. When you already have a lot of debt, adding an auto loan payment to the mix can spell disaster for your financial future. Taking an auto loan with higher interest rates can also put a lot of stress on your ability to pay off said auto loan.
When you are preparing to get a car, outline a plan for yourself. Include in this plan your budget, your current debt and any other financial responsibilities you have currently. Use this as a guide when purchasing your car, think about how your finances will change once you get a car and what impact it could have on your budget.
Find Your Debt Solution with Guardian Debt Relief
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