Car loans work fairly similarly to how mortgages work. Lease plans are even close to a mortgage but regular car loans are more popular amongst consumers. Companies are more comfortable with leasing cars as they do not want to waste resources managing their fleet. Car loans are a bit different but can be compared to a mortgage and there are several reasons for it.
1. Car Loans Do Not Require A Down Payment
Usually, car loans do not require a down payment. Mortgages do require a down payment. This can be different from one lender to another and dealers may offer various financing packages. It is better to compare them because you are not always offered the best deal.
2. Interest Rate Can Be Lowered
For a mortgage, the interest rate does not fluctuate much but for car loans, loan interest rates are conditioned by several things. A higher credit score will allow you to access better financing conditions because lenders consider you a trustworthy person that will always be on time with monthly payments. Also, if you decide to come with a down payment, lenders will offer a lower interest rate which will further reduce the amount of money you have to pay monthly on the car.
3. The Vehicle Serves As Collateral
Throughout the car loan contract, the lender owns the car. If you fail to make the monthly payments, the car may be repossessed by the lender. If you paid a third of the total amount you owe on the car, the lender cannot repossess the car without a court order. Also, once you paid half the cost of the car, you may have the option to return the car and no longer make any payments as the lender will sell the car to cover the rest of the due amount.
There are a few other things to consider when getting a car loan. It is important to have a good credit score, check multiple offers and if possible have a 15-20% down payment to get a lower loan interest. Remember that a car loan is like a car mortgage and you be the owner of the car only once the loan is repaid.