When it comes to car loans, you ought to be really careful. If you choose the wrong deal, you’ll end up in a vicious debt cycle. On the flip side, a favorable deal will let you make the most out of auto financing. So how do you spot the best auto loan deal? Well, the answer lies in exploring various types of car loan rates and assessing their pros in view of your needs. If you’re not familiar with various types of rates on car loans, read below.
Types of car loan rates
Essentially, there are two types of rates on auto loans. The first one is the fixed interest rate, and the second is the variable interest rate. Each of the two types has its merits and demerits. As such, it becomes necessary to check them minutely to use the best one as per your needs and existing conditions.
Fixed rate auto loans
As the name indicates, it’s a loan with a fixed rate of interest. The interest rate charged to the loan will remain fixed throughout the term of the loan. The market rate has no effect on the fixed rate.
Benefits of the fixed rate
The prime benefit of a loan with a fixed rate is certainty. That could be worth it to many loan seekers. No matter the market conditions, you can always be certain about your monthly installments. This lets you calculate and plan your finances swiftly.
Fixed rate loans tend to be beneficial when the rate of interest is expected to rise. Such a situation can save you substantial money. However, a fixed rate can be burdensome when the rates are expected to fall. Also, you may have to pay fees if you plan to repay the loan early.
Variable rate auto loans
It’s a loan in which the rate of interest charged on the loan’s outstanding balance changes with the change in the market rate. Consequently, your payments will vary as long as the principal and interest are blended. If the market rate goes up, your installment amount goes up as a result and vice-versa.
Benefits of the variable rate
Flexibility is the biggest asset of a variable rate. There’s no need to worry about penalties in case you wish to increase your monthly loan payment amount. Even if you want to clear the loan early or switch to another loan provider, you likely won’t have to pay any fees.
Variable rate loans are beneficial to those whose financial status keeps on changing with market conditions. However, these loans never ensure any kind of stability and predictability. You can’t estimate your monthly payment and plan accordingly. This can be a big drawback to folks who’re always on a tight budget.
Getting familiar with the various types of rates can be handy when seeking auto financing. Besides accessibility to multiple options, you get an opportunity to pick the right option in view of your financial status and needs. Just go through the above-mentioned types of auto loan rates minutely, and you can be on your way to bagging the best deal.