Guide to Car Loans
Car Loans are a specific type of loan specifically designed for the purchase of a vehicle, and although often difficult to qualify for, they can offer benefits to the purchaser.
Many people in the UK are incapable of paying cash for a new or used vehicle. As such, car loans are often sought to finance a vehicle. A car loan is like any other kind of loan from a lending institution, although the money lent is intended only for the purpose of paying for said vehicle. The borrower will never see any money from this loan and will instead pay the lender directly after taking possession of the vehicle. However easy as this sounds, there are some strict qualifications one must possess before being granted a UK car loan.
Once can seek to finance a car through the typical lending institutions: banks, building societies, financial institutions. Also, one can arrange for the loan through the car dealership themselves, who may deal with a specific car loan lender. Car loans are unsecured loans, meaning that there will be no collateral involved. However, without the collateral, this means a UK car loan is actually difficult for some people to qualify for. Those in a high-risk category, such as people with bad or no credit, may not be able to finance a car in the UK.
Those who do not qualify for a UK car loan may be able to get a person with good credit to cosign on the agreement. This will help lenders to trust the owner will repay the loan since someone with a good credit history is now also responsible for the agreement. Since a car depreciates in value rather than appreciates, such as real estate, the interest rates will be quite high in comparison to other kinds of loan. One should be prepared for this and calculate whether repayment will truly be viable with such a high interest rate.
Different car loan agreements will have differing lengths of time to repay the loan. Those who extend the loan the longest amount of time will have smaller monthly payments but will ultimately pay more interest in the long run. The general maximum amount one can receive for a car loan is £25,000, although this can differ a bit from one lender to the next. As strange as it may seem, qualifying for a car loan can actually be more difficult than qualifying for a mortgage loan. This means that a person with so-so credit may be able to own a home but not a car.
Car loans, because of the perceived risk involved, are a bit difficult to qualify for in any country. However, very few people would own cars without them. It is worth it to apply for car finance even if a person is unsure whether or not he/she will qualify. If he/she doesn't, a car loan specialist or a co-signer may make it possible to own the vehicle. One should keep in mind, however, that seeking a car loan through a specialist might increase the interest rate, as that person will be considered more high-risk. A large down payment may help to decrease one's interest rate, though, and will make the lender feel more confident in the car loan agreement.
Written by Amy Cottrell for UKLoansPortal.co.uk