Choosing a smart car loan
12 March 2008
When deciding on which car loan to apply for, keep in mind a few vital details that could save you money and keep you out of future debt. It doesn't only apply to the loan you take out, but the car you are buying can have an effect on whether you'll struggle or cruise.
It's not a bad idea to choose a car loan with a long term, as long as it allows you to repay early with minimal associated charges. Longer terms will mean that you pay more in interest if you make repayments over the full length of the term, but your monthly minimum repayments should be lower than on a shorter term. As the economy is somewhat unsure at the moment, keeping your monthly expenditure down should help to shield you from the effects of further interest rate rises. The importance of being able to repay early without hindrance is so you may refinance your loan in the future if your current one becomes unwieldy.
A variable rate is more likely to result in a smart car loan over time than a fixed rate. Interest rate rises seem inevitable at the moment, and they can cause you to crave the security of a fixed rate car loan, but by now the lenders have adjusted their fixed rates to account for rises of the variable rate. Even if you end up paying a lower interest rate in the future, the fact the fixed rate was higher when the total amount was larger means that you have probably already paid equal, if not more, interest than someone with a variable rate car loan. In this case, the high cost of security outweighs its benefits.
If you are contemplating the extra facilities on offer with many car loans, reconsider. Extras mean higher fees and unless you are using them on a regular basis you will likely benefit more from putting the money you save into repayments. Unless you can calculate a real financial advantage to paying for more services, do think about a no frills car loan.
When it comes to the car you buy, it is important to keep in mind two things that apply to its financial benefit: repair costs and resell value. If you are only after a car for vital things such as moving your family or getting to work, then choose a reliable car with a good track record. Cars that require expensive parts for repairs or that eat up a lot of fuel will soon add unnecessary expense to your operating costs, making it harder for you to pay off your loan. If you want a luxury or sports car, be prepared for the high likelihood that repairs will cost you significantly more in parts, and that you may need premium quality fuel to avoid your vehicle falling into disrepair. A good strategy in avoiding a useless but flashy car is to ignore advertisements. You may think a nice car makes you look like you have a great lifestyle, but what's the point if having the car means you can't afford the posh lifestyle?
The car you choose will also benefit you more financially if it has a high resale value. You will probably take out a car loan in the future to buy your next car, and the more money you can retain from your current car, the better. If the car is going to drop significantly in price as soon as it's off the lot, think about whether that much loss is worthwhile for what the car provides.
For a excellent range of smart auto loan providers, please visit our car loans page.
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