Car Loans

Cars are expensive. When you buy a home, the home is an investment. The value is supposed to rise, and you are supposed to eventually either make (or at the very least break even) the amount of money you spent on the house if you sell it. Cars, on the other hand, depreciate in value. Spend £10,000 on a car, and 10 years later the car is probably worth only £500 or less.

Due to both this dropping value as well as the overall expense of cars, most people do not feel the need or cannot afford to spend all of their cash at once on a car. Instead, these individuals take out car loans.


What Are Car Loans?

Car loans are usually provided by the dealership you are buying the car from. They run your credit, provide you with an interest rate that is usually at least somewhat competitive, and you make monthly payments to the dealership that take into account interest.

Almost everyone purchases their car with a car loan, though the amount of the loan varies depending on how much money the individual provided as a down payment. Car loans are one of the primary forms of debt, along with school loans, home loans and credit cards.

How Safe Are Car Loans?

Car loans themselves are just like any other loan. A standard car loan likely has a moderate interest rate that is not as high as credit cards, and it covers the cost of the car. Interestingly, although dealerships plan on making money off their car loans, they are willing to offer lower interest rates because they are more interested in selling the car and making the profit than they are profiting off your debt.

However, if you have bad or no credit, that is when you need to be wary. Car dealerships that offer car loans to people with bad or no credit are, even when trustworthy, usually trying to take advantage of your need for a car (very few people shop for a car because they simply want one – usually it is badly needed). These agencies may, for their own safety, ask for an incredibly high interest rate that if you badly need a car you are likely to agree to.


And since car loans are essentially secured loans where your car is the collateral rather than your equity, these companies can repossess your car if you do not make the payments, making these high interest rates somewhat risky. If you have a home, you may want to consider getting a secured loan to cover the costs of your car if you have bad credit. If your credit is adequate, a standard car loan should be just fine for you. 


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