What Are Car Finance Loans Explained In Two Minutes Or Less
Very few people afford to buy a car with cash. Both new and used cars are financed using various methods. The most common method is to get a car loan. Other financial products can be used to finance a car but car loans are by far the most popular because they are the most advantageous for the buyer. So, what is a car finance loan?
A car finance loan is similar to a secured personal loan. The car that you are buying will be collateral for the loan contract. This means that if you default on the loan by stopping to pay the monthly payments. If that happens, the lender has the legal right to take the car, sell it, and cover the loan. This rarely happens as lenders prefer to find solutions for their customers rather than to go through the entire repossession process. The same thing happens with a secured personal loan but the collateral could be something else of value.
Throughout the car loan contract and until the last payment is done, the owner of the car is the lender. The lender will not exercise any kind of property rights during the contract thus the vehicle will practically belong to the beneficiary. As this is a common practice in the industry and the way car loans work, everyone should be aware of the process.
There are a few benefits that a car loan offers over other types of loans. Because it is a secured loan with the vehicle as collateral, the interest rate is much lower than with other types of loans. Also, unlike with a lease plan, you do not have to pay any residual value at the end of the contract to keep the car. Once you make the last payment, you become the rightful owner of the car. Just keep in mind that the amount you pay monthly for the same car can vary a bit depending on the interest you get from the vendor. It is better to check with multiple lenders and get the best deal possible with the lowest interest for your car finance loan.