Acquiring a new car can be both exciting and frustrating especially if you lack enough funds. Luckily, there are lenders out there willing to finance your investment by lending you money in form of auto loans.
These loans come in multiple shapes and sizes with different modes of payment. The choice you make depends largely on your auto needs.
Similarly, most lenders may require you to have a high credit score and a good financial history to obtain these funds. Others will ask you to provide an asset as security to minimize risks. That said, here are the main types of credit union auto loans available.
- Simple interest auto loan
Simple interest auto loans are paid monthly together with the accrued interests. The interests are calculated periodically often on daily basis.
Likewise, if a borrower makes larger payments or settles the debt earlier, it can reduce the amount of interest accrued on their loan. Simple interest auto loans are the perfect option for borrowers looking for a more flexible loan payment method.
Additionally, if you recently got a raise at work or have a substantial savings plan, opting for this type of loan could reduce your overall borrowing cost in the future.
- Pre-computed auto loan
These loans are not as flexible as the simple interest ones. Borrowers get a fixed payment schedule in which each payment has a precise loan interest and principle.
Making larger payments or increasing payoffs doesn’t affect the total interest and principal accrued over time. Typically, you pay the same amount of interest in each payment throughout the life of the loan.
Pre-computed auto loans are perfect for those with little savings or predict a negative change in their financial status in the future.
- Secured personal loans
These are lends backed up by another Asset. They include car loans and mortgages among others. Typically, collateral is required for you to acquire these funds. For example, you may be required to provide your car, home, or land title as security.
The lender may ask you to provide proof of ownership for these assets as well. In case you fail to pay back the money, you risk getting your properties seized by the lender. Lenders find secured loans less risky since they are secured by another asset.
In fact, some credit unions allow you to use your savings as security. See this link to read how you can get an auto loan even with bad credit https://www.bankrate.com/loans/auto-loans/car-loan-with-bad-credit/.
- Private party loans
Private party loans are ideal for borrowers looking to purchase their vehicle from a friend or an individual seller. Basically, the lender pays the agreed amount to the seller, then the borrower repays the amount plus the accrued interest over the agreed period.
Before opting for such a dealership, check out whether there are any loans linked to the vehicle. Such loans could limit your ability to acquire funds from your lender.
- Direct financing
Here, credit unions provide funds to their customers to purchase their car from a private party or a dealership. Borrowers obtain these funds by interacting directly with a lender.
Typically, all communication takes place between the lender and the borrower, no third party is involved. Moreover, borrows get pre-approval for the loans before they start shopping for their dream car.
You also get to view all the loans details including the APR directly. Direct financing has a unique way of application where each lender provides a separate application for filling.
- Indirect financing
Indirect financing involves a third party who acts as a mediator between the lender and the borrower.
Car dealers are the most common third-party players. They carry out all the loan negotiations with the lender on behalf of the customer. However, for one to acquire these loans the dealer must be approved.
Unlike direct financing where the borrowers require to fill multiple applications, here you only need to fill one form. The biggest challenge about having a third party is that they may choose to increase the borrower’s Annual Percentage Rate (APR) for their own gains.
- New and used car loans
Generally, a new car may cost more than an old one. Also, loans for new cars are higher than those of a used car.
This narrows down to the condition of the borrower’s vehicle among other factors. Similarly, it is easier to get a long-term loan with a new car than their used counterpart with lower interest rates.
The reason being, lenders find new cars easier to value and re-sell in case the borrower defaults payment. Typically, they are less risky than older cars.
- Unsecured personal loans
These debts do not require any form of collateral to secure them. They depend entirely on your credit score. If you have a good credit score, your chances of getting the money are higher.
However, if your credit score is low, you might consider improving it first before seeking an unsecured loan. Additionally, lenders find them riskier than the secured ones.
If you fail to repay these debts, the lender cannot repossess any of your properties. As such, they have high-interest rates and fees. Click here to see more insights.
Auto loans can be the key to acquiring your dream car. They are also affordable and hassle-free compared to cash payment methods. Before you opt for a loan, find out the type of vehicle you need and how much it would cost you. Also, go for what is affordable based on your current budget. It is also worth noting that different car loans have different application processes and modes of payment. This is in addition to other factors like loan duration, fees, and repayment of penalties, credit score, APR, and interest rates.