Perhaps you are planning on selling your car quickly and easily with our Instant Offer tool and start searching for new or used models on AutoTrader to buy. But you are unsure of the different ways in which you can finance a vehicle. Below we expand on a few options you can consider.
Related: Can car finance be paid off early?
The three different ways in which to finance a vehicle.
Not everyone can afford to buy a car with cash, and that’s okay. Today there are more options available to possess your own transport, and one such option is vehicle finance. You can get vehicle finance from the bank, from a financial institution, or even at the dealership. There are also a variety of finance options you can explore.
Here are three ways in which you can finance your vehicle:
Bond
Using a bond is usually the best way because the interest rate on home loans is notably lower than most car loans. You can also save the time involved with applying for a new loan by simply restructuring your existing loan. However, it is important to keep in mind that the term of your loan plays a big role in governing the overall cost of the loan.
If you are paying back the cost of the car over a 10-year (120 months) period, it will cost you considerably more than if it was taken out over a 36-month period with an interest rate that’s 5% higher. If you are using your home loan to pay off a car, you should do so in the span of 48 months.
Pros
- Low interest-rate
- Bonds can be taken out at the dealership
Cons
- You risk having your vehicle repossessed if you default on payments
- Can only be used to buy late-model (newer) vehicles
Car Loan
If you are purchasing a vehicle from a dealer and you don’t have a bond, then you will be offered a car loan. With a car loan, the lenders can set a lower interest rate because the vehicle is used as collateral. However, if you default on the car loan (meaning you failed to repay the loan), the vehicle will be seized/repossessed to recover the loan.
These are some of the features and conditions you can expect to be attached with a car loan:
- Usually not given for cars older than 60 months (5 years)
- Terms are fixed at either 36, 48 or 60 months (3 years, 4 years or 5 years)
- The contract can be structured to include a balloon payment
- If done with a trade-in, the cost will be reduced
- If a deposit is put down, the cost will be reduced
Pros
- Low interest-rate
- Car Loans can be taken out at the dealership
Cons
- You risk having your vehicle repossessed if you default on payments
- Can only be used to buy late-model (newer) vehicles
Personal Loan
If you are considering buying an older vehicle or purchasing from a private seller, then the only option is to get a personal loan. Personal loans usually have higher interest rates because the loan is unsecured and the risk is higher. But the difference between this loan vs a car loan is that you own the vehicle as soon as it’s paid for.
A good credit score will reduce the cost of a personal loan. A good credit score, or improving it, will get you a better interest rate and shorten the loan term. This also warrants that the loan repayment term is no longer than the functional life of the vehicle.
Pros
- Can be used to buy a vehicle from a private seller or even an old vehicle
- No repossession
Cons
- Interest is generally higher
Want to know How to get the Best Car Finance Deals? Watch the video here.
