There are many different loans available and it can be confusing at times knowing which might be the best to use for certain purchases. You might wonder whether a car loan will be the best choice or whether other options are worth considering.
How to compare
You may just think that the best way to compare loans is to use a comparison website. Although this will compare the interest rates, it may not be the most useful way to compare loans. It is worth considering that there are other things to compare as well as interest. For example, it might be that you need low monthly repayments, that you want a well-known lender or things like that. You need to think about what is important to you with regards to a loan and therefore what you need to look out for. Then you can look at each in more details and make sure that you are getting exactly what you need. You may think that just a car loan is worth looking at when buying a car but there may be other suitable alternatives as well.
Pros and cons of car loans
A car loan is set up specifically to buy a car with. This means that it is easy to think that it will be the best thing to use. This may or may not be the case though, depending on what you are looking for in a loan.
A car loan may use the car as collateral. Although this is likely to keep the cost of the loan lower, compared with a loan that does not need collateral it might also mean that it is risky. If you are unable to make the repayments, then the car could be repossessed by the lender and sold to repay the remaining loan. If you are without a car, it could mean that you will lose your job or at least be less mobile which could be a huge problem for you.
If a car loan is offered by a dealer, then it could allow you to buy the car for less. Sometimes they will allow you to get a discounted price on a vehicle if you use their car loan. This might seem good, but it may mean that their prices are inflated and you could find an equivalent car cheaper elsewhere. You may also find that considering how much the loan costs in total, the amount that they reduce the car cost by is very little as a percentage of what they are making from the loan.
It is important to make sure when you take out a loan that you can cover the repayments and that you are happy about the terms. If you take a car loan through the dealer, there is not often much time to think about what you are signing up for and therefore you could make a quick decision without properly thinking about it. We can get carried away with thinking about the new car and how much fun it will be and not concentrate on making sure that the loan terms are acceptable.
It is worth considering what other option you might have. The cheapest option is to use your savings or to save up for the car. Then there will be no loan costs. This is not an option for everyone though as if you need the car urgently and have no savings or feel you will not have the self-discipline to save then you will have no option but to borrow the money.
You might want to consider whether a personal loan might be better. It is good to compare the rates of these and decide whether you think that they might offer better value for money. It is a good idea to calculate the specific cost and compare it to the cost of a car loan to see what you think. You will be unlikely to need the car as collateral so that might be worth paying a bit extra for.
If you have a mortgage you may be tempted to add the costs on to that. As the mortgage interest rate is often lower than that of a car loan, then you may assume that it will be cheaper. However, mortgages are repaid over a long period of time and if you have not had the mortgage for long, then you could be paying interest on that extra money you borrowed for decades. Therefore, make sure that you carefully calculate how much each of the options will cost you so that you are sure that you are paying a fair amount. You may find an alternative id dearer, but you may still like the idea as you may be happy to pay more if it means that the terms suit you really well.