You might be on the market for a new car sometime soon. Here is some information about various types of car loans and how you can benefit from them.
Car Loans and How They Work
According to Lantern Credit, a vast assortment of auto loans is available. The first thing you need to get a grasp on is understanding car loan amortization. Loan amortization is a process during which a portion of your payments goes to the principal balance of your loan.
The rest of your payments go toward the interest. Some loans have better amortization than others do. That’s why it’s always smart to read your loan agreement thoroughly before you sign for it.
Types of Auto Loans and Their Benefits
As mentioned before, a vast assortment of loan options exist. These are some common types of auto loans and how they may benefit you if you accept them:
Buy-Here-Pay-Here Loans
Buy-here-pay-here loans are options that some small car dealerships offer. They are in-house loans that don’t use a third-party banking institution.
The benefit of this type of loan for you is that the lender may not check your credit. Your payments will go directly to the dealership, as well. Thus, a BHPH loan has convenience and flexibility as benefits.
Simple Interest Loans
A simple interest loan is an auto loan that calculates interest daily in most cases. The interest is based upon the principal balance.
Therefore, a customer can reduce the amount of interest by paying extra money in his or her payment. You will see the benefit in this type of loan if you make additional payments.
Precomputed Interest Loans
Precomputed interest loans are based upon a set amount of money. The interest stays the same, no matter whether the customer makes an additional payment or not.
The benefit of this type of loan is that the customers always know exactly how much the interest will be.
You may be more comfortable with this type of loan if you prefer to pay a set amount for a certain period. It’s a no-nonsense arrangement that might help you with your budgeting in the end.
Pre-Approved Auto Loans
Pre-Approved auto loans are loans issued by a financial institution. These lenders may offer a blank check and tell the customer that he or she can purchase a vehicle up to a certain amount.
When lenders issue pre-approved loans, they’ve almost always already checked the customer’s credit score, and the loan terms will remain the same after that person purchases a vehicle.
You might prefer this type of advance because you’ll go to the dealership already knowing how much money you have to work with. Your only task at that point is to choose a car you love.
Those are just a few of the many types of loans you might get for a new or used vehicle of your choice. Talk to your lender about your options and apply if you think you qualify for a car loan.
Interesting related article: “What is Auto Financing?”