Finance and Loans
The Cost Of Finance and Loans
- The cost of finance or loans is largely dependent on the interest rate and the amount borrowed. Although this might seem obvious, the fact is that this information can be used by you to determine either your monthly loan repayments, or the length of time over which you want to take the loan. Both of these will be determined by the amount that you feel you can afford to pay each month.
Loan Calculator
The overall cost of new car finance will be decided by the interest rate and the time over which you pay. You can use a loan calculator to find out the cheapest way, and also the best way according to what your affordable monthly repayments are. To some people the amount of each monthly payment is not of considerable importance, while to others it is critical, and in the latter case you can increase the repayment term and pay less each month. However the overall cost of your loan in terms of capital repayment and interest payments will be higher.
It is usually true that the longer period over which you pay, the more interest you will have paid by the time you have paid off the loan. A car loan calculator will be able to work that out for you, and let you know how much interest you will be paying. However, you can reduce the cost a new car loan by careful selection of the lender. Not all are the same, so what should you be looking for?
Secured and Unsecured Loan
First try to get a lender that will provide you with a guaranteed fixed interest rate for the period of the loan, whether that be one or five years. Not all do this, but it is possible to find lenders that will give you this security. Because your car is new you will be able to negotiate a secured loan, with the goods as security. This will generally allow you a lower interest rate, and so the cost will be less than if your loan was unsecured.
Comprehensive Insurance
There can be hidden expenses in buying a car, boat, equipment, or home other than the actual loan itself. If you have a secured loan, the lender will require the goods to be well looked after and maintained, and will in most cases insist on you having a fully comprehensive insurance policy. This is so that, should anything happen to the goods, it will not lose value through you being unable to afford a repair or even a replacement, depending on the severity of the claim.
Balloon Payment
If you want to reduce your payments without lowering the loan amount then you can always request a option for a balloon payment.
This means there would be an amount of money that your are required to settle with a financier at the end of the loan. Your monthly repayments are correspondingly less. You can repay the balloon payment at the end if it is affordable. Another option could be to refinance this amount if the financier approves or trade the goods and have the balloon amount taken off your trade in amount.
Cost Of Finance
The cost of finance, then, is a combination of interest rate, fees and charges the lender may charge for the loan, any extra insurance you may wish to include in the loan, period of the loan and the amount you borrow,. The option of a balloon payment allows you to reduce your monthly repayments, but not the over cost since you are still paying interest on the entire loan, balloon included.