Those who wish to buy a personal or commercial vehicle with the help of borrowed money can make use of this facility. Auto loans are offered for almost all kinds of vehicles and can be offered by both banks and the auto dealers from whom you buy them. Here are some key features of this type of loan:
- Auto loans are most popularly used to buy cars in the USA. They are available for both new and used cars of almost all kinds.
- Simple Interest auto loans work like a traditional personal loan, albeit the collateral here would be the vehicle you buy. So, this is a secured loan which, if not paid, can be recovered from the lender by selling or repossessing your vehicle. The interest is calculated on the outstanding balance on the loan. So, if you can manage to make larger payments than the stipulated EMI, then you can pay off your loan faster and by paying lesser interest. Pre-computed or calculated interest auto loans are however the traditional loans offered by auto dealers. In this, the interest rate and amount remain fixed and doesn’t allow for early repayment of the loan.
- Banks, credit unions, car dealerships, and even home equity loans are the common sources of auto loans.
- Auto loans require quite extensive background verification before you are approved for them. Your credit score, personal and professional details are thoroughly verified before checking your income and repayment abilities. Having a good credit score is a bonus because you will get any kind of loan at very good interest rates. However, getting an auto loan with poor credit score is not impossible. The terms on which you get the loan, however, would be challenging for the borrower. Typically, the interest rate is quite high, and the amount lent is not as much you would otherwise get.
- The credit score of 680 and above is considered eligible for auto loans, just like it is the case for most mortgages and other types of loans. An auto loan is usually for a term of less than 5-6 years. However, for larger and commercial vehicles, the terms obviously vary significantly.
- A larger number of people are opting for simple interest loans rather than the ones offered by auto dealers because they retain the ability to pay off the loan faster and for lesser interest payment. Some dealers, however, have a clause tied in with the vehicles they sell, thus making it compulsory for the buyer to go with the finance options they provide, only.
- Very rarely, lenders also offer loans depending on the available equity of a vehicle. This is a very risky option for the lender and an expensive one for the borrower. This is, usually, opted for by people,who arenot in severe financial difficulties.
Auto loan payments, like mortgage payments, must be made on time every month, regularly, else you run the risk of losing your vehicle to the lender.