Is A Car Mortgage The Right Financing Option For You?
The term car mortgage refers to a very particular type of financial product. Financing institutions may have different names for it but the product itself works the same. The only difference between lenders is the interest rate and the APR. Some may even offer some small bonuses depending on the dealership they work with but this is not something mandatory. Since there are several different ways of financing a car, is a car mortgage the right option for you?
The very first thing you should know about a car mortgage is that the vehicle you buy will serve as collateral. This means that if you default, the bank will repossess the car. None of your other assets are compromised if you decide to return the car.
However, defaulting will hurt your credit score and may cause you to be unable to access other loans. What the bank will do is sell the car at around its market value and pay the loan outstanding balance using those proceedings. If your finances are in change, this situation is something you would want to avoid.
Another aspect of car mortgages is that at the end of the loan period, once the principal is paid, you own the car outright. This is not always the case with other types of financial products. For example, a lease may have you return the car at the end of the contract or pay a residual amount to keep it which is usually at least 10% of the value of the car when it was new. A car mortgage is much simpler and is less of a headache.
What is important to note is that a car mortgage can be used to buy both new and used cars. Usually, such a loan would make more sense when buying a car with a lower value thus used cars and budget new cars are the best candidates. Fortunately, there is no shortage of used cars, and budget new cars are a big segment with plenty of diversity.
Lastly, when it comes to car mortgages, the interest you are getting can be flexible. A few factors influence the APR and interest such as your credit score, the down payment, and the period of a loan. If you are not getting a good offer because of one of the above, you can refinance the loan once your financial situation improves as you may be able to save some money.