What is a car loan?
A car loan is a type of personal loan that you use to purchase a vehicle. It is a secured loan, which means the vehicle you are purchasing is used as security against the loan you are taking out. These types of loans aren’t exclusive to new cars either: there are a range of providers that offer car loans for used vehicles too. The best car loan for your needs will depend on a range of factors, such as the age of your car, what sort of flexible loan features you're after and the amount you want to borrow. Just like personal loans, there's a huge range of car loans out there vying for your attention from a range of bank and non bank lenders. One sure way to find out whether the best car loan for you would be a low rate loan that does the job for less, or a jam-packed one with plenty of features... is to read this guide!
Choosing between a fixed or variable rate
If you've done a little car loan comparing already, you may have seen the terms "fixed rate" and "variable rate" scattered about. Don't just pick one at random though, as your choice can majorly influence how many dollars you end up paying back in interest or fees. Ultimately, the rate type you opt for should depend on how you intend to use your car loan.
Fixed rates
Let's look at fixed rate car loans first, where the interest rate is guaranteed to stay that way for the entire loan term. So long as you follow your loan repayment plan, you will know exactly how much money will go to your provider in interest. On the downside, most fixed rate loan providers charge a fee when the total loan amount is repaid early, and many have limits on how much extra you can repay. This is why, when choosing a fixed rate loan, it's important to select a term that aligns with how many years you want to spend paying off your loan.
Variable rates
Unlike the stability that comes with fixed rate car loans, the interest rate with variable rate loans can change over the course of your loan term in or against your favour. Don't let that put you off, as they will rarely involve early loan repayment fees. So if your budget can handle a slight rate change, plus you want the opportunity to clear your debt whenever it suits, a variable rate car loan could right for you.