The demand for used cars rocketed during the coronavirus pandemic, and this trend continued through 2021. However, since the lockdown period demand has continued to remain higher than average, while the average used car price in the UK rose by 31.9% year-on-year.
So, whether you want to buy a new or a used car in the current market, you’ll have to fork out a considerable sum of money.
Because of this, you may want to take out a car loan, enabling you to finance your purchase and spread the cost of this over a series of fixed repayments. But what are the key considerations?
Why Should You Consider a Car Loan?
The rising cost of used vehicles makes it hard to buy an affordable car in the current climate, at least without compromising on your choice of model or the type of vehicle that you want to buy.
This is where car loans come into play, however, as they enable you to get a more expensive vehicle and repay the car loan cost over an agreed period of time.
OK, we hear you ask, but why choose this type of loan product over a finance agreement with a car dealership? Well, a car loan ensures that you own the vehicle from the beginning, enabling you to sell this whenever you choose (so long as you can recoup the cost of the loan).
At the same time, the car isn’t automatically used as collateral to secure the loan, so this isn’t immediately at risk in instances where you miss a repayment or begin to struggle with repaying the total debt. However, you should always ensure you have the means to pay back the car loan before opting to choose this option.
What are the Key Considerations When Taking Out a Car Loan?
There are also a number of important considerations when taking out your loan, which should impact your decision and choice of lender. Here are some of the most crucial things to keep in mind:
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- #1. Interest Rates: All loans (either secured or unsecured in nature) are subject to interest rates, which are applied to the total amount to create a total sum for repayment. It’s this that allows lenders to profit on the transaction, with unsecured car loans featuring higher rates of interest to help offset the lender’s increased risk of being unable to pay back the borrowed amount. The key is to compare the market in detail to ensure that you find the competitive rate of interest, reducing the total cost that you’ll eventually have to repay.
- #2. Key Terms and Conditions: You should make sure to look into the terms and conditions before choosing a car loan, helping to ensure it is right for you.. These terms include interest rates and late payment rules, while also stipulating whether or not the loan can be repaid early and in full without incurring additional charges. You’ll find that some loans are far more flexible than others, so shop around to find one that best suits your needs. Researching the company that provides the loan is key, make sure to choose a company with excellent customer service should you need to communicate the terms of your loan during your repayments.
- #3. Reviewing Your Credit Score: Ultimately, you’ll find it easier to qualify for a car loan in instances where you have a good credit score, while you’re ranking and perception in the eyes of lenders will also impact the quality of your agreement in instances where you are accepted. So, before applying for a loan, be sure to check out your credit score and its associated report, as you may be able to quickly improve this if there are glaring errors with regards to accounts or your address. If your score is really low, you may want to consider taking out a different type of agreement or specialist loan.
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