Car loans provides the financial support to all those who
are willing to buy a new car or second hand car. In present times, a car loan
is also considered as the most common loan in the finance industry as car is
becoming a necessity for our either business or personal purpose.
Now let's come to the core of any car loan agreement that
is, its interest rate. Interest rate varies from person to person and they are
determined on the financial situation of the person, as person with strong
financial background is always being offered with competitive rates.
But there
are some common factors, which affect the interest rate being offered to either
to the person with strong or weak financial status. These are:
- Amount
financed
- Repayment
period
- Base
rate
- Prevailing
market etc.
It is also seen that the lender generally offers two types
of interest rates, which are fixed rate of interest and floating rate of interest.
In fixed rate of interest, the rate is fixed till entire term of loan. And in
variable interest rate, the rate fluctuates with the change in the base rate
and market forces.
When the person availing car loan, he is obliged to pay a
monthly payment, which is known as equated monthly installment (EMI). EMI
basically includes two components or payments that are the principal amount and
the interest rate.
EMI of a person is determined on the basis of the loan term
he chooses. In other words, if he chooses long repayment period, in such case
his EMI will be less as compared to the EMI in the shorter period. Various
lenders provide loan calculator, which is basically designed to determine the
EMI of the person.
Commonly, the car loan is secured against the car itself but
he also has an option to place his asset or any thing of value as collateral.
Collateral placed helps in availing loan on competitive prices.
And if the
borrower misses any payment, in such case, the lender either can sell his asset
or can even take back the car. Missing any payment not only results in
repossession but also put a tag of bad credit in his credit report. And this
tag further emerges as hurdle while performing in the financial market.
The first thing that the individual is supposed to do is,
figure out the place from where he wants to get his loan from, to be precise,
what schemes and discounts policies of which institution suits him the best.
There are
different institutions that offer such car loans like banks, dealers, auto
manufacturers and private lenders also indulge in providing car loans.
After deciding on the institution from which the individual
wants to take the car loan, the second thing that needs attention is the fact
whether he needs the loan for buying a new car or a used car.
This is an
important factor since the interest rates depend on this; generally the
interest rate is lower for loans used for buying new cars than that which are
used for buying used cars.
Besides this, the time period available for repaying
the amount of loan for new cars are far more stretched than that for used ones,
which is for sure an added advantage.
The consumers of these loans must be very careful, they
should not believe on the fake advertisements that are been published and displayed
now and then to attract more and more consumers.
The consumer should check into
these commercials thoroughly before they settle down on things, because these
commercials are usually false and are no way real. These loans involve high
down payments and also immense high rates, which make them really impossible
for the customers.
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