Problems with a fixed rate car loan
Monday June 2, 2008
Car loan rates are rising ever higher, but this does not mean that a fixed rate will necessarily save you money. A fixed rate can seem like a good idea for a car loan when you are unsure if interest is going to cost more in the near future, but it will usually depend on the specific terms of the loan as to whether it can really be a good deal for you. Usually in a fixed rate car loan you will find that your ability to repay beyond the compulsory payments is restricted or else entirely disallowed. This is so the lenders can accurately predict what they can make from you in the fixed rate period.
In a fixed rate car loan in a period of rising interest rates with no ability to make extra repayments, you are very likely to come out worse off than with a variable rate car loan. This is because your car loan will be accumulating interest on the largest amount and probably have slightly higher interest rates in the near future, even if it's lower now. A variable rate, on the other hand, will normally allow you to make extra repayments as you wish, although you may be charged an early repayment penalty, so be sure any savings on interest will outstrip penalties.
If you would like to learn more about car loans from banks, please visit our dedicated page, or else browse our comparison page to look for an optimal car loan.
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