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A car finance contract is an agreement between an individual or group to borrow a certain amount of money from a financier , or ‘lender’, in order to purchase a vehicle. The borrowed money is then paid back over a number of months, at an interest rate agreed to by both parties. The lender is usually a financial institution like a bank, but it can also be an individual, a public group, a private group.
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Many people have their car loan application rejected. Here are some tips for ensuring that your next application is successful:
Subtract your monthly expenses from your income after tax to determine how much disposable income you have every month. Use CarZar’s car affordability calculator to determine how much you can afford to spend on your new vehicle finance. Consider the running costs of the car – maintenance, servicing, possible repairs, fuel – and make sure it fits comfortably in your disposable income.
Vehicle finance providers record-check all credit profiles. Therefore it is critical that those applying for a car loan to settle as many debts as they can. To check whether the applicant is a reliable debtor, financiers can examine how your manage the monthly payments on your credit cards, home loan, or clothing accounts..
Not only does putting down a deposit come across as being financially responsible to the financier, but it also a reduces the asking credit amount and in turn, the monthly vehicle finance repayment amount.
There are a number of different car finance options, and it’s important to understand the option that best suits your circumstances.
A personal car loan, or an unsecured loan, involves borrowing a lump sum over a fixed term in order to secure instant vehicle ownership. Lenders such as FatCat Loans (https://www.fatcatloans.ca) provide short-term personal loans for this purpose. Your second hand car can be yours as soon as the dealer receives the money, and you can sell it privately without settling any funds with the financing institution first.
This vehicle finance option requires an initial deposit followed by fixed loan installments for your vehicle finance repayment. The vehicle belongs to the financier for the duration of the contract, and at the conclusion of the contract you can either take ownership of the car by paying off the amount still owed to the lender – known as a ‘balloon’ payment – or return the car to the supplier, provided the distance traveled is below the maximum mileage stipulated by the supplier. Monthly payments for this car finance option tend to be lower than other options, so this is a commonly selected option.
An initial deposit on the car finance followed by fixed monthly payments. The deposit is usually 10% of the car’s value, but a larger deposit results in a smaller monthly vehicle finance repayment. At the end of the car finance agreement, you will receive legal ownership over the vehicle. You may also be given the option of paying off the outstanding car finance.
Renting of a vehicle over a long period. Requires an initial rental payment, which is essentially a deposit, followed by fixed monthly car rental payments. Can include a maintenance package which covers certain vehicle maintenance services. The car must be returned at the end of the lease period.
A third party agrees to pay the monthly car finance repayment if you fail to do so. Usually required if the candidate has a poor credit rating.
Changing the rate at which you pay off a car loan will change the overall structure of your loan. By extending the loan period, the overall interest on your car loan installments will increase, causing you to pay more over the contract.By paying off the loan quicker – by paying more than the required monthly installment – you can save a significant amount of money on the reduced interest, as well as improve your credit score for further purchases.