Cars are not cheap to buy, which means that when one is to be bought, one often needs to borrow money to cope with the financing. Here we will take a closer look at the particular car loan and what applies to such.
Loan with collateral
When you lend money to a car, you will use the car as collateral for large parts of the total cost. Therefore, it is said that a car loan is a loan with collateral another known loan with collateral is a mortgage loan. Since there is collateral, the lender is less likely to lend money which is positive for you as a borrower.
You can expect to get a slightly lower interest rate if you take out a car loan than you would if it was a private loan. The fact that it becomes less risky for lenders is due to the fact that they can demand that the car be sold and that the money from that sale is used to repay the loan. This if a lender does not repay his loan as planned ie.
How does a car loan work?
Before you buy a car, you look up your possibilities to borrow money from the lender you wish to use. The car dealers usually can help you with a solution but this is not a must, but you can turn to a lender yourself.
You should therefore check if you can borrow money before you buy a car and not afterwards. For you do not have to own a car yet to apply for a car loan, but you just have to decide to buy one. You will then receive a certain amount of the sum as a car loan where the car is as collateral. The loan-to-value ratio is often at a maximum of 80% of the value. The fact that there is 20% left is because the lender wants a safety margin so that they get their money back when selling the car. For normal, cars lose value quickly.
The car loan itself is thus at most 80% of the cost, which means that the remaining 20% must be paid in some other way. It is usually then to redeem an old car to cover this sum. If you do not have an old car or it does not have a sufficiently high value, the money must be paid in another way, for example through saved money or a private loan.
The maturity of a car loan is not very long as cars lose value over time so a lender does not want them as collateral for a while anymore. Therefore, the term of 6-7 years is often the most.