There are many reasons why people get loans. Perhaps they want to enjoy a once-in-a-lifetime opportunity that will never come their way again. Or perhaps they need to fix up the house to get it ready to sell. Or perhaps they need to make a financial decision to consolidate their debts in order to reduce their monthly payments and lengthen the term to pay back their loans. Whatever the reason many people are looking to loans to help them reach their financial goals.
There is nothing wrong with using loans to reach your financial goals. In fact, a loan can be an excellent tool to add to your financial portfolio because it can help you leverage your current position. But which loan is the right loan for you?
There are basically two kinds of loans. Unsecured loans and secured loans are the two kinds of loans that you have available.
Secured loans are loans in which you offer the lending institution some kind of guarantee that they will receive payment for the loan. The example of a guarantee might be some assets that you have, like your house or your car or stock certificates. Although you don't have to turn them over to the lending institution in order to get the loan, having them in your possession assures the lending institution that if you are to default on your payment they would have something to seize and sell to recover their losses.
On the other hand, an unsecured loan is a loan in which you simply use your credit rating to help you borrow money from the lending institution. People who do not have assets or do not want to provide assets as a guarantee may prefer this type of loan as an alternative.
So which one is the better loan? While every case is different, you should consider what is important to you. For many people getting a good deal on a loan means getting a low interest rate, a high amount of available loan, and a long repayment period.
If that describes you then you probably want to go with a secured loan. Why? It's simple. Lending institutions determine the amounts they're willing to lend, the interest rates they will be lending at, and how soon they want the money back based on the amount of risk they are taking to give up the money. While a person with a good credit rating may not be a big risk, the risk is still greater than with the person who has some assets to back up the loan if they are unable to pay with money.
So it may be the right one for you. A secured loan is the right option for many people because it provides a greater amount of available lending cash, a lower interest rate, and a longer term to repay.
Many new car buyers will appreciate the latest automotive trends expected to take shape in 2006 and beyond. A greater variety of downsized, fuel-efficient SUVs will be available. New vehicle safety features like tire pressure monitors will reach the market. And sales promotions like last summer's employee discount campaign are expected to set the stage for year-round, no-haggle vehicle pricing.
But a less-publicized automotive trend - rising interest rates - will make 0-percent car loans a rare breed in 2006. Increasingly, consumers will need to comparison shop for their car loans before they go to buy, just as they do for the vehicles themselves.
According to Bankrate.com, interest rates on new car loans rose steadily throughout 2005 and the pattern is expected to continue into 2006. The difference of just two percentage points on your APR can either save or cost you more than $1,400 over the life of a typical loan.
"Many consumers do not realize that they have other options for financing their car, outside of the dealership," said Brian Reed, vice president of Capital One Auto Finance. "There are some great options for consumers to finance their car on a direct basis, versus relying on the dealer to provide that service for you."
Because education is the key to getting the best deal when financing a car, Capital One Auto Finance offers prospective car buyers the following helpful tips:
Set a realistic budget. Choose a vehicle that won't overextend you financially. A general rule of thumb is that no more than 15 percent to 20 percent of your total monthly budget should go toward all your car-related expenses.
Verify your credit record. Order a copy of your credit report to ensure it's accurate and in good shape. Correct any errors before applying for a loan.
Comparison shop for loans. Check out credit unions, banks and online lenders to see what rates are available in the market, so that you know a competitive rate when you see one. Visit Web sites such as www.bankrate.com and www.capitaloneautofinance.com.
Arrive with financing in your pocket. Having approved, no-obligation financing in hand gives you a competitive advantage when you go to buy, giving you the power of a cash buyer. If the dealer offers a better loan rate, you can take it with no penalty.
Approach your purchase as three transactions. It's best to treat each part of the purchase separately: 1) financing; 2) trade-in; and 3) vehicle purchase. This will simplify the process and maximize your negotiating opportunities.
Match length of loan to expected length of ownership. Select your loan term based on how long you plan to own the vehicle. Buyers who take out longer-term loans can find themselves "upside down" on their loan (owing more money on the car than it's worth in trade).
Review your financing terms carefully. Make sure you know your interest rate, monthly payment, amount you are financing, the length of your loan and your trade-in value.
"If car buyers would spend just a fraction of the time researching their auto loan as they do the latest features on their new car, they'd be surprised at how much money they could save," said Reed of Capital One.
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