Used Car Loans for Beginners

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January 27, 2012

Used car loans can be a confusing topic for those who are new to auto loans. If you're buying a vehicle for the first time, car loans aren't always the easiest things to understand. Fortunately for you, this used car loan and car buying guide will help you with the basics of loans. You'll learn about what a used car loan is, and about different kinds of used car loans, such as student car loans.

The first, most basic thing to know is what a loan is and how it applies to buying a used car. When you buy a car, used or otherwise, you will need to finance it if you aren't able or willing to pay the full purchase price upfront. Financing means that you can borrow the full purchase price from a loan company and make monthly payments until the loan is paid back with interest. Now that you know what a loan is, here are some different types of loans.

Student Car Loans

As may be inferred from the name, student car loans are meant for young students who don't yet have the credit rating to secure a traditional loan. In order to get a student car loan, you may need a recommendation from your bank and proof of enrollment in school. You will also need somebody with a solid credit rating to cosign on the loan as assurance to the company that the loan will be repaid. The advantages of a student car loan are that you can get one without having a credit history, and most loan companies will offer lower interest rates and longer periods to make repayment.

Personal Loans

This is a common loan for those who are not attending school and who have credit built up. Personal loans are the most basic type of loan: you go to a lender, they give you money and you pay it back over time with interest. The money they give you is based on the understanding that you are trustworthy to pay it back, so a good credit history is necessary. Personal loans are good because you can pay for the car upfront and own it right away, as opposed to a hire purchase, which is described below.

Hire Purchase

A common method of purchasing a car, hire purchasing means that you give the car dealership a down payment, usually between 10% and 20% of the purchase price of the car, and then make monthly payments with interest until the entire vehicle is paid off. The problem with hire purchasing is that you don't fully own the car until the final monthly payment is made, which usually takes at least three years with standard financing.

These methods of loaning are all viable options if you're looking to purchase a used car. If you're a student, ask various lenders about special deals on student car loans, otherwise, a personal loan or hire purchase would be a better choice. Once you've secured a loan, all that's left is to enjoy your new used car.

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