Many people who want to buy a car, but are unable to pay the full amount in cash, do not even imagine that there are some possibilities to finance the vehicle. One of these modalities, not so common, is the mortgage.
Mortgage offers a longer payment period
When taking out a loan through a mortgage, the consumer will have a longer term to pay for the loan, and this is enough to reduce the monthly amount to be paid for the contracted loan. However, it is important to note that a longer term may result in a higher interest rate, which would greatly increase the total cost of the loan taken.
How a Mortgage Can Lower Your Borrowing Costs
One option to reduce the cost of a loan is to carry out financial planning and be able to afford at least 30% of the total value of the vehicle. This would reduce the interest rate and consequently the monthly installments will be smaller. The greater the portion that the consumer can afford as a deposit, the lower the interest.
What are the risks of using the mortgage to buy a car?
The answer is, it depends! In many cases, a mortgage can be one of the best ways to finance the vehicle. This is due to the fact that the interest rate on home loans is generally much lower than most auto loans or personal loans.
This is due to the fact that when carrying out this type of loan, the consumer is leaving his home as collateral. In other words, if the consumer does not pay for the installments, the bank can take the house as payment.
Chosen time to pay the loan
Through a mortgage, consumers can have up to 120 months to pay for the purchased car. However, it is important to remember that the longer the payment period, the higher the loan costs. Therefore, choose the shortest period possible according to your monthly payment financial condition.
If you have the capacity to repay the loan in 48 months, why choose 120 months? That would just make the loan more expensive. However, each consumer must assess their financial conditions and make their own decisions in light of their financial reality.
The advantages of using a mortgage to buy a car
The advantages begin with the ease of getting this loan. Another important factor is the interest rate which is lower than conventional loans. The payment term can reach 10 years.
What are the disadvantages of using the mortgage to buy a car
If at any time the consumer becomes unemployed or goes through any other type of financial difficulty and is unable to honor its obligations, the bank can finalize the mortgage and take over your home.
Other types of loans to buy a vehicle
There are other types of loans for those who want to buy a car. The consumer can resort to a car loan, specifically for this purpose. In this modality, the loan, when granted, the car is alienated with the financial institution. Thus, if the consumer does not pay the monthly payments on time, the financial institution can request a repossession and sell the vehicle to another customer. In other words, it is a way for the financial institution to protect itself, and for this reason it can offer an attractive interest rate.
Another modality is the personal loan. The vehicle is not alienated to the bank, but in this modality the costs may be higher. Another detail is that the consumer will not always have a high personal loan amount released easily.
How to organize myself to take out a loan
The ideal is to save a certain amount to give as a down payment on the vehicle. The lower the financed amount, the lower the costs. Plan a down payment of 10% to 30% of the total value of the good you intend to buy. But, it doesn’t stop there! Write down all your income and also all your expenses. See how much you have left every month after paying off all your debts. Assume a financing installment that does not leave you in the red.
It is important to remember that your financial health will depend exclusively on your good planning. Pay the monthly installments on time, as it is common that in case of delay, the consumer is penalized with fines and interest, which makes the loan even more expensive.
Remember to have a financial reserve for vehicle maintenance. Take into account the wear and tear of the car, such as oil changes, tires, general maintenance. So leave a separate emergency reserve, as these unforeseen events can always happen. With planning, you are never taken by surprise.
Now that you know the main tips, choose the car of your dreams based on your financial reality and good luck.