CarLoansCalculation - A car loan is a personal loan for the specific purpose of buying a new or used car. You borrow an amount of money that you agree to repay within a certain period of time (called the term). This can vary, but is usually 12 months to 5 years. You will have to sign a credit contract which will specify the amount borrowed and how you will repay it.
You pay interest on the amount you borrow, which may be at a fixed rate (where the interest rate is
locked in for the term) or a variable rate (where the rate may go up or down over the term), plus any fees and charges. While a fixed rate loan offers the benefit of set repayments, if you want to make extra payments from time to time, and pay out the loan early, you may be charged an early termination fee.
A car loan may be secured or unsecured, depending on whether you put up your car (or other asset) as security for the loan. With a secured loan, you usually pay a lower interest rate than for other kinds of lending – but it also means that if you fall seriously behind on your repayments, your credit provider has the right to sell your car (or other asset) to get their money back. Secured loans are usually only available for newer cars, because they are more valuable as an asset. With an unsecured loan, you do not need to mortgage your car as security, but you will likely pay a higher rate of interest because the credit provider is taking a bigger risk.
If you buy from a car yard, the car dealer might offer to arrange finance for you. While dealer finance might seem more convenient, it’s usually cheaper to get a loan elsewhere. Banks, building societies, credit unions and specialist lending and leasing companies also offer car loans, so check out what’s on offer.
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