Trying to get some wheels but can’t afford to buy them in cash? Have no fear because car financing can have you on the road driving a new car in no time. There are a variety of auto loans that are available and applicable in different car purchase scenarios. The wide availability of auto loans have considerably lowered the bar for all to have access to financial assistance when buying a car. Here are some of the most common types of auto loans.
Direct loan
When it comes to debt solutions, starting at your bank and asking for financial backing is always the wise choice. The bank you are using already has all the relevant details on file, making the process quick and efficient. Most banks have various direct loan options, including car financing. This financing option is available for both personal use and business bank accounts.Â
To secure a direct loan for car financing, it’s wise to maintain a positive credit card balance and ensure timely payments, and using a camper trailer loan calculator can be a great aid in this process. Doing so will improve the chances of being approved and reduce interest rates charged to you. Remember that you can also apply for direct loans at a different bank than the one you are using.Â
However, most banks commonly use similar vetting and application policies and procedures. If you can’t get a direct car loan from your bank, other banks will also decline on the same merits. Fortunately, being declined by banks does not mean it’s the end of the road because there are other finance options available.
In-house auto financing
In-house auto financing is a more convenient car loan that is available. This type of car financing gives applicants that might not qualify for a direct loan a chance to purchase a vehicle. Dealerships around the country generally have in-house auto financing with different partners. For a dealership to offer in-house financing, it has to be a credit provider or partner with a private lender.Â
Private credit providers have slightly different approval policies than banks. The most important criteria they look into include your credit score and affordability. By providing proof of employment detailing net salary after deductions, private lenders partnering with dealerships can either approve or decline an application.Â
Your best partner in this situation is Loaner Cars. You can use it to find the most affordable option and apply for in-house financing. Dealership websites with in-house auto loans calculate the repayment fee and period it will take to pay off the car. From then on, you can sign an agreement, and the repayments will be paid directly to the dealership instead of a bank.
Auto auction loan
Auctions are the perfect spot to find below market value vehicles that can be projects to work on or daily running vehicles. Other auctions might have some vintage jags that have been rebuilt and customized for collectors. Regardless of the type of auction you are looking into, that car you’re eyeing might be a little out of your budget range.Â
The catch with auctions is that they do not have in-house financing. Transactions must be in cash, and if it is not paid in full by the time of collecting the vehicle, the deal is canceled. The deposit paid to have access to bidding rights might not be returned. Therefore, having cash on hand is important in an auction.Â
Fortunately, there are auto auction loans available for potential buyers. Before paying the deposit, you can apply for the lenders that the auction has partnered with. You will get pre-approved for a certain amount that can be used for bidding.Â
Lease buyout
Let’s say you do not have a good credit score. Perhaps you’ve only just started working and have not got a chance to take out a credit card. Or it could also be the case that your credit score is not really ideal for one reason or another. What can be done in this case?Â
Lease buyouts are a great option for potential car buyers without a good credit score or solid affordability proof. That includes self-employed individuals without a payslip or consistent salary payments. On a lease buyout financing plan, buyers get to drive away with their favorite car and pay fixed installments on it. However, the car is not in his name until the final installment has been paid.Â
In simpler terms, a lease buyout is a rent-to-own deal allowing users to get immediate access to a car on the stipulated terms. Dealerships offering lease buyouts are not that common, and the repayments can be a little hefty compared to other auto finance options.
Fleet financing
Direct loans, in-house financing, and lease buyouts might not cover fleet purchases for businesses. Fleet financing is usually more strategic and complex to approve. Some banks do not even offer this service due to its complexity and inherent risk. Private lenders and credit providers providing business debt solutions could be the answer to fleet financing problems.Â
Due to its risk, these private lenders or business credit solutions might require additional information about the reason for fleet financing applications. Additionally, the lending institutions might even want surety in the form of collateral valued at a certain percentage of the loan’s value.Â
To get fleet financing, prepare a business plan, fill out all the forms, and ensure that the directors have healthy credit scores. The business plan should be convincing on how the loan will be paid back by detailing operations and finances comprehensively. If there are business assets that you can put up for collateral, do so. It will increase the chances of the fleet financing application being approved.
Balloon loanÂ
Balloon loans are a type of auto financing providing car buyers with some flexibility down the line. When taking balloon-payment loans, only small installments are required in the first months. However, when the auto financing balloons, that is when it reaches a certain number of months, a large lump sum is due.Â
Most of the time that happens after 36, 48, 52, or 60 months. At that time, car buyers have multiple options regarding the vehicle. One of those options is trading in the car when its installments balloon and this lump sum is due. Car buyers also have the option of selling the car instead of paying a large deposit.Â
Trading in the vehicle can give you options to drive different vehicles and even be covered by service warranties for longer. At some point, balloon financing does have higher interest rates making the vehicle purchase a little more expensive than it should be.
Car refinancing
If you have recently started working or haven’t built up a good credit score to get a loan with reasonable interest rates, car refinancing might be a perfect choice. Instead of going for a lease buyout, you can settle for financing with a higher interest rate. Diligently pay that auto loan and take care of other debt punctually to build up a good credit score.Â
Somewhere down the line, when you qualify for a lower interest rate, apply for car refinancing. Going this route will reduce the monthly installments you are paying significantly. In the long run, car refinancing will reduce the overall value you will pay with a higher interest rate.Â
Shop around for car refinancing and inquire if that dealership does offer that kind of credit service. Some banks also do offer this auto loan service. Enquire before buying any vehicle with auto financing if you can qualify for car refinancing when your credit score improves.
Conditions of used car loans
Not all used cars qualify for mainstream auto loans, such as in-house or direct financing. Used cars being sold by private parties might not be covered by these mainstream auto financing solutions. However, Certified Pre-Owned (CPO) vehicles being sold by a dealership are covered by partner lending institutions.Â
To get in-house financing or a direct car loan, consider buying a CPO vehicle. For private seller financing, consider specialized lending solutions specified for this type of sale.
When buying a CPO, try to buy a vehicle that is about a year old to get the most value for less money. The value of a vehicle depreciates immediately when it leaves the dealership. It also depreciates within the first 12 months, and the total depreciation value is around 20%. You can buy the vehicle at 20% less in a relatively new condition while shielding yourself from this depreciation.
