Understanding Different Types of Car Finance Options

There are a lot of financing options for you to consider when you plan on buying a car. In Australia, you can check out lenders like loans.com.au. Their websites have car loan calculators that can greatly help you work out your monthly repayment and customize the terms of payment. These are also great for when you compare car loans as well as the car loan rates as there are many different types of car finance options.

Here are several car finance options to consider:

Personal loans or car loans

This type of loan is a sum of money that a financial institution lends you to buy a car and payment is agreed upon usually on a monthly basis plus the interest which is calculated on an annual basis. The car title, generally, will serve as the collateral for the loan which means that failure to follow the payment terms will lead to repossession of the vehicle.

Personal loans can be secured or unsecured loans. Secured loans will require some of your assets as collateral for security purposes. With collateral, interest rates are lower, and lenders tend to be more flexible when lending more money. When you default your payments, the lender can use your collateral to cover for the amount of your loan. If the collateral is insufficient, you will be responsible for paying the difference. On the other hand, unsecured loans are not tied to any of your assets. This type of loan is typically more expensive, given that they have no collateral.

Finance Lease

This is where the financier or lender buys the car and leases it to the borrower. You can use the vehicle right away with minimal capital. You pay a fixed amount monthly and take full responsibility of the car. When the lease period ends, you can choose to refinance, return, or buy the car for the residual amount.

Novated Lease

This is an arrangement with the employee consumer, the employer, and the car financier. The employer’s role is to pay the financier the monthly obligations through the employees’ salary, meaning, the employees’ salary is reduced in exchange for the value of the vehicle. The operating costs of the vehicle is shouldered by the employee and, in case of employment termination, the employee takes full responsibility of the vehicle.

Chattel Mortgage

The financier lends money for the purchase of the car while holding a mortgage over the car, and this mortgage guarantees the payment of the loan. The ownership, however, is given to the borrower while still giving regular payments.

Do you have other ideas when it comes to car loan rate and how to compare car loans? Share your insights in the comments section.

About the author  ⁄ Marxa Dillan

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