So, you've decided to take the plunge and apply for a car loan. Great news. Getting behind the wheel of your dream ride is one of the most exciting things you can do. But are you across everything you need to know to choose the right loan for you?
Not all car loans are created equal. Finding the best one takes research; you need to ask the right questions, to the right people, at the right time.
Here's our guide to help get you on your way.
Questions to ask yourself:
How much can you afford to borrow?
This is probably the most important thing you need to consider. By getting a car loan, you're agreeing to pay a certain amount back each month. Your job is to work out what you're able to afford and whether you're happy to take on that commitment.
To help you out, most lenders provide a range of financial planning calculators to give you a clear idea of what you're getting yourself into. So don't make any decisions before running the numbers, have a look here.
What kind of car are you looking for?
Again, another important question. Choosing something that takes into consideration your future needs (growing family, job change, desire to own a sports car) is important, and will help you make sure you're not revisiting cars in two years' time.
How long do you need to pay it off?
As a rule, the shorter your loan term, the higher your monthly repayment. However, if you can afford to pay more each month, it might be worth doing so as you'll probably end up paying less interest overall.
Also, some lenders (like us) allow you to pay more than your agreed amount each month, so you can take a yearly break from your repayments. This is especially useful if you have a tight month coming up, say with Christmas or a holiday. Do bear in mind that early termination fees can be charged if you pay a loan out early, so check in with your lender to learn exactly which conditions apply to you.
Questions to ask your lender
What's the loan's rate?
This will determine how much interest you need to pay on your loan. The lower your rate, the less you'll have to pay.
The main pro of a fixed rate is that you'll always know where you stand. You'll never have to pay more interest than you agreed to, and you can rest assured that market fluctuations will never affect the state of your loan.
A variable rate, on the other hand, does open up the possibility of being able to pay less interest than you expected. But it's less of a "set and forget" situation.
Is the loan secured or unsecured?
Most car loans tend to be secured. This means that you'll use your newly-purchased vehicle as a guarantee should anything stand in the way of you being able to make your monthly repayments.
A secured loan generally has lower interest rates, more flexibility and you can enjoy the security of knowing you'll always have a safety net in the event that anything goes wrong.
How flexible is the loan?
More choice is a good thing. Say you want to pay off your loan early or make additional repayments along the way, ensure you choose a loan provider that gives you options that fit with what you want.
When you're doing your research, ensure you're able to manage your loan on your terms. That means getting into the detail, understanding where there's room for manoeuvre and where you lock yourself in to cut down on fees.
Learn more about the ways Latitude can help you choose the right car loan