When you are in the market for a new or used automobile,
you may be overwhelmed by the variety of car loans available
in the financial market. Varying interest rates and length
of loans can be confusing even to the experienced consumer.
Here are some helpful definitions for terms you may encounter
while looking for automotive financing.
Comparison Rate
This is the actual cost of a loan on an annual basis, including
charges, fees, and interest payments. The comparison rate
is sometimes called the Annual Percentage Rate, or APR;
however, it includes far more than a simple annualised interest
rate. The comparison rate typically includes all fees and
charges except those assessed by government agencies. The
stamp duty, for instance, is not included in the comparison
rate.
Early Termination Fee
An early termination fee or payout fee is assessed by some
lenders if car
loans are paid off early. Typically, this
fee is intended to protect lenders and ensure that they
receive expected interest payments over the life of the
loan. Some lenders do not charge early termination fees,
and this can sometimes be negotiated directly with the lender
at the time of financing.
Chattel Mortgage
Some companies offer loans wherein the corporate customer
assumes ownership of the vehicle at the time of purchase,
and the company retains a mortgage over the vehicle as security
against the loan. This is one of the most common forms of
corporate vehicle financing, as it provides significant
tax advantages for companies who can often claim interest
charges on the vehicle as a tax deduction. This loan option
is not typically available to individual car buyers.
Personal Loan
In certain cases, companies that provide car loans will
offer highly-qualified borrowers the opportunity to obtain
financing without requiring a lien against the vehicle as
security. These arrangements are known as personal loans,
and are different from traditional car loans in that the
finance company does not claim the vehicle as collateral
and cannot repossess it in the traditional manner. Most
people cannot qualify for these types of loans unless the
amount to be borrowed is very small.
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