With the option of loan it is much easier for people to own things at their pace and flexibility. Loan helps in strengthening finances during the time of need, because maintaining finance at all times is not an easy thing. With the changing times, there is also change in the necessities of individuals. Earlier owning vehicles and properties were signs of lavish lifestyle, it has now turned into a necessity to have these things.
With the options of loans in every sector, it has made it largely easy for people to help them economically in expanding their business, buying vehicles, owing properties, paying education fees and many more. There are a number of loan options available to suit one’s requirement and needs. Car loan, Education loan, Home loan, Personal loan, Credit Card loan are some of the examples of most opted loan services. The individual loan type has its own eligibility criteria, duration, interest rate, repaying tenure, terms and services.
The borrower borrows money at a certain rate of interest which he has to pay along with the borrowed money in timely installments. Banks and financial institutions follow the same procedure and earn money from it. For large sums they require collateral to ensure that the provider does not suffer any loss in case the borrower turns a defaulter.
Isn’t it surprising that car loans in the USA are more expensive than home loans? In the USA, opting for a home loan can be cheaper when compared to car loans. The type of loan opted has its interest rate and repaying tenure which largely depends on the amount borrowed and down payment done at once. In the case of home, the value of properties seems to fluctuate but it’s on the positive side almost every time, but in the case of cars the situation is reversed. Due to the variety of models changing rapidly, technology advancing the value of cars depreciates with the passing time. The buyer wants to buy a new model enriched with modern technology and good performance.
In times of economic ups and down, the value of objects varies greatly. What is costly this year might see a huge difference in cost next year, which is the same in the case of cars. If one is financing for a used car, it is obvious to have higher interest rates, because the loan provider can foresee the two situations in front of him. First, if the borrower turns out to be a defaulter, there will be a huge loss to the provider. Secondly, the value of used things depreciates with its use and time.
In car loans the fact you have a bad credit score also makes you pay high interest for financing your car, because you risk as a borrower is inevitable to the loan provider. In a home loan, your home acts as a collateral and you can get 60 to 70% of the loan according to its market value by the loan provider. The home acts as a shield until you pay off the loan amount. Moreover there are government policies which help in reducing the interest rate on it. There are also tax benefits given to the salaried employees in the States which can help them in covering the cost.
If you have made a small down payment and have a large amount to pay off, the interest rates go higher and in the case of car loans it turns out to be more expensive than home loans. In the USA, the interest rate on loans depends on the present federal interest rate and the state you are currently living in. If you have a good credit score, the interest rates charged can be almost 10 times lesser than those with bad credit scores. It clearly depicts the importance of having a good credit score if you are going for a loan! If you have a credit score more than 780 you get the very best interest rate and if it is less than 600 it can go in 2 digits!
In Auto loan(car loan) if you miss payments or make any default there is likely a high chance for you to repay the amount even after the seizing of your vehicle by the respective loan provider. The common loan term is 12 to 84 months. APR interest rate on car loans can go as low as 1.01% and high as 14%. In the USA, financing your home is easy because you are charged with lower interest rates than other loans, because it is considered as a secured loan. The common duration of home loan is 15 to 30 years. With a credit score more than 500 you can qualify for an FHA loan. APR interest rate on home loans can go as low as 2.8% and high as 5.6%. Mortgage loans in the States include FHA for people with lower incomes.
According to the U.S Public Internet Research Group, car debt has seen 75% rise since the Great Recession in 2009, reaching an all time higher- 41.2 trillion. The car loans are setting records in America with the average amount borrowed $34,500 for new cars and $21,400 for used cars. While the interest rate on American mortgages has seen decline in past years, costing average car loans higher than average home loans. Home loans possess less risk as they are considered as secured loans and have collateral in the hand of the loan provider, but in case of car loans it will cost you pretty higher if there is any default.
If buying a used car, make sure to make a large down payment and have certified pre-owned vehicle with the manufacturer warranty to reduce interest rates, otherwise you will end up paying more than the actual amount of the car. A good credit score can also help in reducing the interest rate, thus preventing cars from being too costly on your pocket.