Can you afford that car loan?
7 March 2008
If you don't spend time looking for the best car loan for you, you could end up losing thousands in interest payments. The worst case scenario could see you struggling to make repayments. If you're after the best car loan on a budget, you';ll need to consider a few factors.
Can you secure the loan?
If the lender is willing to secure the loan using the car you are purchasing as an asset, they should be able to give you a better interest rate than that for an unsecured loan. It's also possible they may allow you to borrow more by securing the loan with other major assets, but remember that these will be forfeit in case you default.
Should you get a fixed rate or a variable rate?
In times of rising interest, it can be sorely tempting to choose loans with a fixed interest rate for the beginning of the loan term. Unfortunately, once interest rates begin to rise, lenders will factor the likelihood of future rises into the fixed rates they offer. You will probably end up paying more interest over time with a fixed rate than a variable one, even if the variable rate rises somewhat higher. The best car loan on a budget in this case will probably be a variable rate loan. However, if you would prefer the security of knowing how much you will need to pay in the future and don't mind the extra expenditure, then a fixed rate could give you peace of mind.
How long should the term be for?
Shorter terms mean you will pay less interest and fees overall, but the repayment amounts will be higher. Longer terms cost more in the end, but allow those that can't afford the higher repayments of a short term loan to have a manageable debt. The best car loan in this case depends on how much you need to borrow and how much you can afford each month. If you think you could barely afford the short term repayments, remember to take the high likelihood of rate rises into consideration, and consider a longer term that will give you some wiggle room.
What extra charges are there?
If your loan is providing you with any special facilities, you will almost certainly be charged for them. Some extras can sound comforting to have, but if you aren't likely to ever need them you'll be better off having the extra money. The best car loan on a budget will have no extras and incur minimal charges. This should reduce the amount you'll pay monthly significantly.
The best car loan on a budget takes time to find. For a head start, why not check out our personal loans page for a list of our recommended lenders?
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