Do you want to buy a car with a loan? If so, you’ll be interested in learning about the different types of financing available. Seeing the differences between each of them can help you determine which is the best option for you.
It can also clarify the kind of commitment you’ll have to make when selecting a specific type of financing. Here are 6 types of vehicle loans.
Types of Vehicle Loans
If you are looking for a car loan for the first time, you may be surprised by the number of options available. The types of vehicle loans are differentiated by:
- Where you can get them
- What type of vehicle purchase they can be used for
- If the vehicle supports the credit
- Vehicle credit for a new car
When you buy a new car, you can buy it with cash, lease or credit. Financial institutions, such as banks, credit unions, online lenders and finance companies, will review your credit history and your application to decide whether to approve or deny the loan.
If approved, they will provide you with the general terms and conditions of the loan, including a monthly payment with interest that you must pay on a regular basis. You can get pre-approved or pre-qualified before you buy a vehicle, and then finalize the transaction at the time of purchase.
- Vehicle credit for a used car
A used car loan is actually the same as a new car loan, with the difference that the purchase is for a used car. Keep in mind that when you purchase a used car, the loan terms may not be as favorable because the vehicle itself is not of equal value.
- In-house financing
With in-house financing, the dealership where you buy the vehicle offers you the loan instead of a bank. Not all establishments have this option, so if you are interested in this type of loan, you will need to research which ones have this type of financing.
- Indirect financing
Indirect financing involves the buyer, the lender and a third party acting as an intermediary in the process. For example, a dealer may collect your financial information and use it to seek credit for you from a bank.
The bank will then acquire the financing that the dealer has originated and you will make payments to the bank.
- Private-to-private lending
If you are buying a used vehicle from an independent seller, one option is to take out a private-to-private loan to pay for it. You can apply for this type of loan from traditional lenders, such as banks and credit unions, where the vehicle is often used as collateral.
- Vehicle leasing
In a vehicle lease, you are basically renting the vehicle to a company for a period of time. The terms are usually 24, 36 or 48 months, and some may be even longer.
However, the ownership of the car can be transferred to the customer when he/she has fulfilled the conditions agreed in the lease contract, which will give him/her the alternative of buying the car once the financing is completed.
Will I get financing to buy a car?
A good credit score can increase your chances of being accepted for vehicle financing at the best interest rates.
Lenders calculate your credit score based on your credit history information, your application information (e.g., your income) and any information they already have about you (e.g., if you are an existing customer).
What should I know before applying for vehicle credit?
Before applying for a vehicle loan to finance a car, you should consider the following aspects:
- How much do you need to borrow?
- How much can you pay each month?
- What interest rate are you being offered? If it is variable, can you afford to increase it?
- How long do you want to be paying the loan?
- How much interest are you willing to pay in general?
- How long will it take you to change vehicles again?
- Are there additional costs, such as extra insurance?
So far we have seen 6 types of vehicle loans. As you can see, there are several alternatives for financing a car. Remember to choose the one that best suits your needs and financial possibilities. We hope this information has been very useful for you!
Now you know more about the types of vehicle loans you can choose to buy a car. We invite you to discover our incredible range of vehicles.