What You Should Know About A Car Morgage
The term car mortgage is not commonly used by dealerships or lenders. They do offer car financing services that can be called mortgages because of how they work. Understanding what a car mortgage is and is not will shed some light if such a financing option is suitable for you and what are your obligations and contractual rights.
Who Owns the Car?
The first particularity of a car mortgage is that the bank is the legal owner of the car until the debt is paid. It is similar to how a lease would work except in this case, the ownership is transferred to the person that took the loan once the final payment is made. Until then, the lender or bank has the car title.
This situation may seem like a turnoff for many but it is important to note that the interest of the bank is to receive all the payments on the loan as they lose money if they need to repossess the car in the event of a default.
Your Obligations
Throughout the loan period, you will need to make the monthly payments. That is the only obligation that you have if you take a car mortgage.
Your Rights
The vast majority of the banks allow you to make anticipated payments or liquidate the loan entirely. This will allow you to save money on interest. The most money saved is on principal payments made in the first year of the loan.
Once all the interest and principal of a car mortgage have been paid, you become the rightful legal owner of the car. The bank will have no claim over the collateral which is the vehicle and usually, they will deal with the paperwork.
Another aspect worth mentioning is that you can come with a down payment for a car mortgage. This will reduce your principal and may even obtain you a better interest rate and lower APR. Some lenders impose a minimum percentage as a down payment but some lenders allow you to pay upfront nothing at all. However, if you pay nothing upfront, you will get a worse interest rate.
Who Is It For?
Anyone can get a car mortgage. Usually, these types of financing options make sense when buying a new car. If the value of a car is low or it is a used car, other financing options may be more lucrative. What matters is to compare interest rates and APRs of different lenders and try to get the best deal possible.