Get the Loan You Need
Are you looking for a car loan with great rates, but aren’t sure where to start in the Nanaimo, Duncan, or Victoria area? Island Car Credit can help! Learn about the different types of loans you can get for the car of your dreams.
Lease vs. Loan
Leasing a car is similar to renting a car. When you lease a car, you’re paying per month to use the car for a certain percentage of the car’s value, calculated by the amount the car will depreciate over the time you’ll be driving it. When your lease is up, you’ll turn the car back into the dealer who leased the car to you. You may choose to purchase the car at the end of the lease, but most leases end when you turn the car in.
A loan involves the dealer or a third party lending you the money to buy the car. The car will belong to you, but you’ll still have to pay back the loan over a period of months until the entire loan is paid off. Loans usually come with interest, which is an additional payment based on the amount you’re paying.
A pre-computed loan is a basic loan with two parts. The principal is the amount of money you borrow that you’re expected to pay back, and the interest is the additional money that the lender “charges” you for borrowing their money. In a pre-computed loan, both the principal amount of money you borrow and the amount of interest you’ll be paying over the life of the loan are pre-determined. These numbers are included in the loan before the borrower and the lender agree on the loan and finalize the financial paperwork. These loans can be easy to deal with because you’ll know exactly how much you’ll need to pay back and can budget for that amount. However, you won’t be able to get a break on the interest if you decide to make car payments in advance or are able to make payments on the loan early.
A simple interest loan is similar to the pre-computed loan, with a principal that’s already agreed upon. However, instead of a pre-determined amount of interest that you’ll be paying off over the life of the loan, interest is charged and adjusted every day. The amount of interest each day is based on the balance that you owe each day, which means that the faster you pay off the principal amount of the loan, the lower the amount of interest you have to pay off over the life of the loan would be. This is good for people who are able to make prepayments on their loan, or for people who look forward to being able to make larger payments more frequently in order to pay off the loan more quickly.
A secured loan can be either a pre-computed or simple interest loan. When you get a secured loan, you offer collateral against the loan. This means that if you’re not able to pay off the loan, the lender is able to take the object or property you put up as collateral in place of the loan payment. This is seen as insurance against the chance that you won’t be able to pay the loan. Collateral for most loans like this is usually another vehicle or a house, but different loans may require different types of collateral. Because this type of loan involves collateral, interest rates for secured loans are usually low.
Unsecured loans are the most common types of auto loans. Rather than picking an object or property you own as collateral, the lender provides the loan on the basis of a financial agreement and the assumption that you will keep your word. Because there’s no collateral involved, the interest rates on these loans tend to be much higher than on secured loans.
Lease Buyout Loan
A lease buyout loan is applicable in situations where a driver is leasing a car, but won’t be able to make the remainder of the payments on their lease. When this happens, a commercial lender will “buy” the debt and make the remainder of the payments on the lease to the dealership that is leasing the vehicle to the driver. After the lease is paid off by the commercial lender, the lessee will be able to make payments to the commercial lender in lieu of lease payments.
Car Refinance Loan
A car refinance loan is for borrowers who aren’t able to pay the high installment amount of their original loan, and can be considered a loan that you can get in order to pay a loan. While this may lower the amount of money you’ll have to pay back in installments, your interest rate may also rise.