What Are The Benefits of New Car Loans?

New car loans are distributed to finance purchases of new vehicles. It is important to remember new car loans and used car loans are often different, and seeking a new car loan will present different selection processes. Car loan lenders include banks, online lenders and dealers or manufacturers. Each of these options will present specific benefits.

Advantage of a New Car Loan

When you are looking for financing for a used car, lenders will assess the value of the vehicle differently. For example, a dealer may think a car is more valuable than the bank. This makes comparing the loans very difficult and can also mean that you may not receive sufficient financing.

A new car loan is easier to assess because the sticker price of the vehicle is generally consistent across dealers. The price will vary based on geographic location, but if you keep the options within one city or state, the value of the car can be assessed without difficulty. This means you will be able to compare the loans better and you will also have an easier time financing the cost of the vehicle. 

Credit Score Increase

Taking a car loan and making regular payments is one of the fastest ways to increase your credit score. Many people seek car loans about 5 years before seeking a mortgage. By taking this installment loan and paying it off, you will show a future mortgage lender you are responsible with your debt. It is hard to get a large loan without taking this first step. Your credit score will increase significantly once you pay off the loan, which usually happens within 5 years for car loans. 

Diversify Debt

You should carry a mix of installment loans and revolving loans on your credit report. Revolving loans are credit cards that allow a borrower to determine how much to spend and how much to pay off each month. Installment loans have established monthly payments. Most borrowers get revolving loans first because they are easier to secure. Installment loans are important to have, though, which leads many people to finance part of their vehicle even if they are able to pay for the balance up front. Financing a small portion of the car balance will build your credit and can demonstrate healthy debt diversity.

Secured Loans are Cheaper

Car loans are usually secured against the vehicle title. This means the lender hold on to the title until you pay off the loan. If you fail to meet the terms of the loan, or default, you will face seizure of the asset. Secured loans place the risk on the borrower. This means the lender is often willing to finance them at a lower interest rate. Car loans tend to be much less expensive than other personal loans or commercial loans that are unsecured.

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