Scraping up a deposit to help you purchase a car can get tricky when you have other expenses to take care of. You may be glad to find out that there are lenders that offer loans that do not require a deposit, but there are a few things that you can consider and compare to ensure that you are getting the best deal for you.
1. It is a secured personal loan
You may be tap dancing at the fact that you will be able to purchase a new or used car without having a deposit in place, but keep in mind that the loan is secured. What this means is that you will have to offer some form of security for the loan, which is usually the car which you are purchasing. This is basically done to protect the lender in the event where you are unable to pay off the loan which will result in the car being repossessed.
2. You will be borrowing more
A no-deposit car loan means that you will be borrowing more money from your lender to adequately cover the cost of the car. The lender will use a Loan-to-Value ratio to check if the amount is within their LVR guideline. However, it is vital that you keep in mind to check if you will be able to pay back the money that you are planning to borrow with interest.
3. Keep an eye out for fees and charges
It is vital to remember that you won’t just be paying off the loan amount along with the interest that comes with it, but there could be fees and charges that come with it that need to be factored into your car buying budget. Most loans tend to come with establishment fees and ongoing fees, but check to see if your loan has penalty fees for paying off your loan early or if you will be charged for making additional repayments. One thing that can slowly eat away at your car buying budget is late payment fees. Therefore, use a car loan calculator to see if you will be able to comfortably afford the loan without getting into arrears.
4. The age of the car
Before taking out a car loan, check to see if the car you are eyeing meets the lender's eligibility criteria. This can help you avoid having your application rejected in a short space of time which can affect your credit score in the long run. If you are purchasing a used car it is important that you check that it does not exceed the age in which the lender is willing to finance. Most lenders will usually cap the car financing for used cars at 10 years. Some lenders will make lee-way for cars that are classic because they increase in value instead of decrease.
5. Do you really need a no-deposit car loan?
Asking yourself such important questions such as whether you need a no-deposit car loan is essential. It can be beneficial when it comes to taking out a car loan that could potentially cripple your finances. It can also be an opportune time to check if you will be better off saving for a deposit to take out a loan that may offer you a better interest rate.