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If you lack the funds to buy a set of wheels, you can consider taking out a loan. Personal loans are a viable solution car financing alternative, especially when you need quick access to cash.
Make an effort to shop around instead of settling for the first offer presented to you. A comparative study of award-winning loans offered by reputable lenders gives you valuable insights. The funds you borrow must attract an interest rate that you can budget with the financial resources at your disposal.
Self-financing a new or used vehicle by taking out a loan requires a lot of thought. After all, you have to repay the borrowed amount with interest over an agreed term. Keeping your financial situation and earning capacity in mind, compare the viability of a potential loan against the six guidelines listed.
Confirm no warranty
A loan that requires you to attach property as collateral is a risk for you. If you miss your monthly repayments, the lender is entitled to take possession of your collateral. If your car is used as collateral and you fail to pay your outstanding loan amount on time, you risk losing this valuable asset.
When the personal loan is unsecured, you are not required to provide any form of security on the sum loaned. In this case, the interest levied by the lender is higher, taking into account the burden of risk which weighs heavily on the lending authority.
Check the type of interest rate
Interest rates on personal loans taken out to finance your vehicle can be fixed or variable. A fixed interest rate remains stable even when prevailing market rates skyrocket. In the event of a drop in market rates, you will not be entitled to any savings given the fixed nature of your interest rate.
With fixed rates, you can accurately budget your monthly repayments because fluctuations are ruled out. When you settle for a variable interest rate on your loan, you benefit from lower market rates. However, your repayment amounts will increase if the lending authority decides to increase the interest rate.
Assess the length of the repayment period
When the repayment period of your loan is longer, your monthly expenses, although lower, cause you to pay more interest. Long repayment terms increase the lender’s chances of charging interest.
With a shorter repayment period, you considerably reduce your outstanding debt with each payment. In terms of total interest, you pay less by repaying your loan amount faster.
Watch for flexible terms
Lending authorities that offer flexible repayment terms without charging prepayment charges are a practical choice. This degree of flexibility is encouraging when you’re in a financial position to pay off your loan sooner.
If you pay your outstanding dues ahead of schedule, the lender loses interest. Given this reality, the absence of prepayment fees is particularly gratifying.
Carefully assess institutional fees
The bank or financial institute sanctioning the loan may levy additional charges on top of the agreed interest rate. Whether in progress, late payment, quitting, or settling, these fees will contribute to the total cost of your loan. Neglecting them will make you think you’re getting an affordable deal when the reality is quite the opposite.
Examine the ease of application
Documentation overload when apply for a loan owning a car can be frustrating. You can complete the loan application and verification process online while protecting your personal information with modern technology.
When the whole process is paperless and user-friendly, you can expect to receive the expected funds much faster. The ability to perform live identity and credit checks contributes to a fast and transparent approach.
Breathe with a digital banking partner that’s with you every step of your lending journey.