If you are looking to buy a car on loan, know that different auto loan types can be different for different situations. For example, if you want to buy a used car, you might get an auto loan that is different from the one you would get if you were buying a new car. Knowing which auto loan will best appeal to your finances will help you buy a car without straining your lifestyle.
In this article, we will explore seven types of auto loans so that you can be better informed before making a decision.
Standard Auto Loan
If you have good credit, you will probably be able to qualify for a standard auto loan. This loan type offers set monthly payments and a fixed interest rate for the life of the loan, which is usually between three and seven years. The main benefit of a standard auto loan is that it gives borrowers predictability when budgeting for their car payments.
Precomputed Auto Loan
A pre-computed auto loan is similar to a standard auto loan, but the interest is computed upfront and included in the total loan amount. This type of loan might be ideal if you buy a used car and do not have a trade-in. The downside of a pre-computed auto loan is that you will not get any interest back if you pay the loan off early.
Balloon Auto Loan
A balloon auto loan is where you make smaller payments for a certain period and then one large “balloon” payment at the end of the loan. This type of loan can be beneficial if you expect your income to increase over time or if you only need the car for a short period. Remember that if you cannot make the balloon payment at the end of the loan, you could lose your car.
Adjustable-Rate Auto Loan
An adjustable-rate auto loan has an interest rate that can change over time. This type of loan is usually used for people buying a new car. The main benefit of an adjustable-rate auto loan is that your monthly payments will also go down if interest rates go down. The downside is that your monthly payments will also increase if interest rates go up.
Credit unions are a great option for financing your new car. Such unions are typically smaller than banks, and they’re designed to serve their members rather than make a profit. As a result, credit unions often offer lower interest rates and fees than banks.
Credit unions for car loans also tend to be more flexible when it comes to loans, so if you have less-than-perfect credit, you may still be able to qualify for a loan. When you’re ready to finance your new car, be sure to check with your local credit union first. You may be surprised at how much you can save!
In-House Auto Financing
In-house auto financing is when a dealership offers its financing for a car purchase. The main benefit of in-house financing is that it can be easier to qualify for than other types of loans. The downside is that the interest rates offered by dealerships are often higher than the rates you would get from a bank or credit union.
Lease Buyout Loan
If you are currently leasing a car and want to buy it outright, you will need a lease buyout loan. This type of loan is typically the same as a standard auto loan, but the amount you finance will be the remaining balance on your lease.
There could be many ways to get a car loan, but you must select the loan type suitable to your budget and lifestyle requirements. Make the right call by choosing the right loan type from the above options.