Types of car loans: which one is best for you?

When you’re ready to buy a car or refinance an existing loan, there are several financing options available to you. Each option has its own set of pros and cons, so it’s important to do your research before deciding which is right for you and your needs.

New car loans

New car loans are used to buy a new car. If you want to make a purchase, you can always finance a new vehicle through the dealer you are buying from. But it’s not mandatory to use dealer financing for the purchase – in fact, it may be better to finance elsewhere – but it often makes the process more seamless.

Typically, you get a loan for three to five years, and your monthly payment will be determined by the amount, interest rate, and term of your loan. You’ll probably need a down payment, preferably 20% or more.

Used car loans

A used car loan is a type of car loan that makes it possible to finance a vehicle that has already had an owner. Some of the most popular used car loans are for Certified Pre-Owned Vehicles, or CPOs. But many lenders offer used car loans for cars that are not CPO vehicles.

Used car loans are available from car dealerships, lenders and online banks. For used car loans, the lender will look at your credit score, income, and debt. The amount you can borrow will depend on these factors, as well as the value of the vehicle you wish to purchase. Used car loans are usually repaid in monthly installments over a period of three to five years.

Auto Refinance Loans

An auto refinance loan allows you to take out a new loan to replace your current loan. You may choose to do this if you have a loan with a higher interest rate and want a new loan with a lower interest rate or a longer term. The result of a lower rate is that you may be able to lower your monthly payment and be on your way to saving money in the long run. A longer term will also reduce your monthly payments, but it won’t reduce your overall cost.

It is important to note that you must have a decent credit score to qualify for a refinance. If your credit isn’t ideal, you may want to consider other options, such as selling your car to pay off your loan and avoid paying off a much higher interest rate.

Cash out auto refinance loans

A cash-out refinance loan is when you refinance your car loan to get a lump sum cash back. The main attraction of a cash refinance is the possibility of making more money. However, you will pay more interest, which means you will pay more money over the life of the loan. Generally, the amount you recover will be limited to the equity in your car.

Car loans between individuals

A car loan between individuals is a loan contracted specifically for the purchase of a car belonging to an individual. This type of loan is offered by banks, credit unions and online lenders.

Since the loan is still secured by the vehicle, there are limits on the types of vehicles you can purchase. As a general rule, cars must be 10 years old or less and under 150,000 miles.

Lease buyout loans

A lease buyout is what it sounds like: It’s a new car loan that can help you buy the leased vehicle. You will own the vehicle while the lender allows you to use the same monthly payments you made throughout the lease.

To fully understand the interest of a repurchase finance lease, it is necessary to know the difference between a dealer repurchase and a repurchase. Dealer buyouts are available when you buy a car outright because you are buying the vehicle from the dealership instead of leasing it. A buyout is when the dealer buys the leased vehicle back from you before the end of the lease.

The bottom line

Auto loans are available in a range of options to meet your financial needs. Be sure to do your homework when shopping for a car so you can understand what type of loan you qualify for and how much you can afford.

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