Whether you are buying a new or secondhand car, one thing remains the same; this is a time that everyone looks forward to and you’re going to need vehicle finance to help you do it.
Many turn to vehicle loans to help them buy the car of their dreams
A vehicle loan can only be used to finance a type of vehicle, i.e.: cars, motorcycles, boats, etc. Most dealerships require a minimum of ten percent deposit of the full vehicle price before you will be allowed to take the vehicle out of the lot. From here on monthly instalments are paid over a pre-agreed upon loan period and interest rate.
If you have never purchased a vehicle using vehicle finance before then it can be quite daunting but these seven things you need to know about vehicle finance should help you learn the ins and outs of vehicle finance.
#1) Savings in the long run
While it might be tempting to save on the initial deposit of a vehicle by purchasing secondhand one, it might not be the best idea. While a secondhand vehicle is cheaper to purchase than a new one, an older vehicle requires more repair work and maintenance than a new vehicle.
This means that the initial cost might be less but over the long-term, the cost of repairs and maintenance will all add up. When you purchase a new vehicle, you will not need to worry about these factors until later on. Also, newer vehicles are more fuel-efficient which means that you will save on petrol in the long run.
#2) A zero-collateral loan
One thing that most people hate about secured loans is the fact that you need to offer up an asset as collateral. Thankfully, vehicle loans are almost void of collateral. The vehicle stands as collateral for itself, but no additional collateral is needed.
However, if you stop making your payments the lender reserves the right to take the vehicle and sell it to obtain the outstanding balance. Remember, when you approach a lender for vehicle finance, they will purchase the vehicle from the dealer or private seller. Thus, the vehicle becomes the lender’s ‘property’.
#3) Improve your credit score
Vehicle loans are an excellent way to improve your credit score over time. If you have a less-than-perfect credit record, the good news is that you will most likely still be able to obtain a vehicle loan.
This is particularly good for those with bad credit as they stand the chance to improve their overall credit record at the same time. So long as you continue to meet your repayments on time you will be steadily improving your credit record. And you get a new car to boot!
#4) Greater budgeting opportunities
When you decide to purchase a vehicle, you will sit down with the lender and discuss what repayments will be affordable for you over the long term. Vehicle loans are highly flexible and can be adapted to fit your financial circumstances. It is unlikely that you will need to adjust your lifestyle as the vehicle loans are flexible to your needs.
With a good vehicle loan deal, the borrower even stands to save money every month which can be put towards a second vehicle, home renovations, a family holiday and so much more! Or you can use this extra money to make additional payments on the vehicle so that you can pay it off faster.
Ultimately the choice is in your hands, but vehicle loan deals are constructed in such a way that it is advisable to take the loan even if you have the savings in the bank. Saving is difficult and it might be better to leave this money in a safe place should any emergency emerge.
#5) Planning for insurance
When you purchase a new car from a dealership the lender you are working through will likely require you to take out insurance on the vehicle. There are very few lenders that would allow the car to leave the premises without insurance.
Before you head to the lender it would be advisable to explore your insurance options just to be aware of what is out there. Most lenders will require you to have comprehensive car cover. Sometimes the lender might have a partnered insurance group which they make use of. These are all things you will need to discuss with your lender at the time.
This means, when you purchase a new vehicle, you need to take insurance premiums and loan repayments into your budget consideration. Make sure that you will be able to afford these new expenses before signing the contract.
#6) Vehicle trade-ins
When the time arises for you to purchase a new vehicle it can be difficult to gather the money needed for a deposit. Most dealerships require anything from ten percent to twenty percent deposit on a new vehicle. This can be quite difficult for the average individual to gather together which is why trade-ins are also an option.
If you are planning to purchase a new vehicle it might be worthwhile asking the dealership if they are interested in your current vehicle. The trade-in value is deducted from the total cost of the vehicle and can even serve as covering your current deposit amount.
Most of the time selling your old vehicle comes with the added hassle and if you can kill two birds with one stone, then why not? Just make sure to do your research and see how much your old vehicle is worth – dealerships are notorious for offering lower values than what you could receive. If this is the case, a private sale might be worth considering if you are willing to deal with the additional work.
#7) Stable interest rates
It is possible to finance your vehicle with a different type of loan other than a vehicle loan, but this is not always the best case. One of the most attractive things about vehicle finance is that the interest rate is fixed for the full term of the loan whereas, with other loans, this is not always the case.
It is wise to check out the current interest rates and trends before purchasing a vehicle to make sure that you are getting the best rate possible. This way you will be able to save yourself a lot of unnecessary expenses on interest. It also eliminates the concern of higher monthly repayments should the interest rate increase.
A fixed interest rate is also excellent for budgeting as it allows you to plan your month-to-month money management. Overall, vehicle finance is better than regular finance and these seven things you need to know about vehicle finance should show you why.