Five Things to Consider When Using a Loan to Buy a Car

Posted on 14 May 2013 by Tony Santos

car-loan-approvedBuying a new car is exciting, but it can also be expensive. For this reason you may be considering taking out a loan to fund the purchase. As with all financial matters, this is not a decision that should be made lightly and there are plenty of things that you should consider before deciding whether or not to take a loan.

Here, we look at just five of them:

APR

One thing that you should always research before you take out a loan for a car is what the APR is and whether you can afford it. APR stands for annual percentage rate of change and is the interest rate calculated on your original loan amount.

This value is a great way to compare different loan schemes or offers. Usually the lower the APR, the better the deal is for you, but it is not always this simple and some short term loans have high APRs because they’re not designed for long term use. IT is therefore important to consider real-life cash examples of interest rates as well as the APR figure.

Budget

Your budget is also key. How much can you afford to spend on a car in the first place and how big will your loan amount have to be in order to get the vehicle you want?

Credit rating

Remember to consider your credit rating too. The bank or loan scheme that supplies you with money to buy a car will look at this and it may affect the amount you’re leant, or the interest rate you’re given. Your credit rating will usually determine how much interest you pay on your loan, so it is a good idea to be aware of what your credit rating is before you decide to take out a loan.

Type of car

You also need to consider what type of car you would like to buy as this can significantly affect the type of loan you take out. Will you be buying a new or used car?

Used car finance schemes are available for the latter option but loans are also available for more expensive, newer models. Ultimately, you want a car that is safe, practical, has good performance and is comfortable to drive. Always check for these features and test drive the vehicle before purchase to ensure you’re not investing your borrowed money in a dud.

Repayments

Lastly, the repayments you’re expected to make should also be considered. Is the repayment scheme suitable for you? Can you comfortably afford to meet these demands on a regular basis? Review your financial situation before making any rash decisions about a personal loan and make sure that you’re new car is worth the money before committing yourself to a financial contract of this kind.

Categorized | Car Loan, Car News, Car Tips

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