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Choosing a personal loan to buy a car

March 24, 2014   - Jules
 
     

If you are thinking about buying a car and you donít have the money to pay for it upfront, you may be considering a personal loan to cover the cost. A personal loan can help you buy the car you want (within reason), and pay it off over a certain period of time.

Car or loan first?

So, should you look for a loan or a car first? Itís best to compare personal loan options before you start looking for cars. This can help you work out how much you can afford to spend on a car, giving you a good place to start. Thereís nothing worse than finding your dream car and then working out you canít afford it. Working out loan options before you start looking can save you that pain.

Working out what you can afford

So, how do you work out what you can afford? Start off by finding a good personal loan calculator, and then start playing around with loan repayment amounts and repayment schedules. Work out how much you can afford to pay back each month and find a personal loan that fits within your budget. Itís a good idea to keep personal loan terms at a four year maximum. While shorter personal loans do have larger repayments, you will pay far less in interest overall than you would with a longer personal loan charging the same rate of interest. Use the calculator to compare options and find the one that works best for you.

Factors to consider

Interest

You will need to decide whether you want a personal loan with fixed rate or variable interest rates. With a fixed rate personal loan, the interest rate will remain the same for the length of the loan. With a variable rate personal loan, the interest rate will vary according to the market and the lender.

Fees

There can be various fees that can be applied to personal loans, such as administration fees, extra repayment fees, late fees and early repayment fees. Check which fees apply on your personal loan, and factor them into the overall cost of the loan.

Secured vs. Unsecured

With a secured personal loan, the loan is secured against collateral Ė usually against your house if you are a homeowner. With an unsecured personal loan, there is no collateral. This can make unsecured loans more of a Ďriskí, making them more expensive and harder to get approved for.

Improve your credit

If you always make your repayments in full and on time, you may be able to improve your credit. This can come in handy when you apply for credit in the future, making it easier to get approved for a home loan, credit card or any other type of credit.
 
     
     
     
     
 
 


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