The Do’s And Don’ts of Down Payments
The subject of loans in our society is one of the most significant topics to consider for anyone. This because of the function of loans, which is to provide instant financial relief to an individual or an organization.
The feeling of being able to own a car, or a house or anything in general without needing to pay immediately is usually a satisfying feeling. Without a doubt, the presence of loans has provided a lot of relief to people, in Oshawa and the rest of the world, and has helped business enterprises to flourish by providing capital.
When a loan is taken, there are different ways by which it can be repaid. The most common form is by making periodic installments of fixed amounts of money. These scheduled payments are spread out in order to increase the ease of repayment. When a scheduled payment date is missed, that particular payment is referred to as bad credit.
The greater the value of your bad credit on a car loan in Oshawa, the harder it becomes for you to take another loan. In this write up, some ways to avoid bad credit on your car loan in Oshawa will be highlighted. However, the main aim of this write up is to help you decide whether or not you want to make a down payment on your loan for a car.
Car Loans in Oshawa
If you live in Oshawa, then you have likely heard your city being called “The Automotive Capital of Canada”.
This is because the city of Oshawa is closely linked with the automobile industry. The city is home to Canada’s national headquarters for the General Motors (GM) group. A high percentage of the city’s revenue and employment comes from the automobile industry. It is not surprising then that citizens of Oshawa would desire to get high quality cars.
Thus, there is a large automobile loan industry in the city. However, lack of sufficient consideration can lead to you having bad credit scores on your car loan in Oshawa.
Factors To Consider Before Taking a Loan
Taking a loan is definitely not something that should be done in haste, or without sufficient knowledge. To ensure a safe, comfortable loan experience, and to avoid the risk of accumulated bad credit on a car loan in Oshawa, some factors are considered below.
1. Loan type
There are several types of loans which are available for the general public. However, this write up is focused on car loans, so the types of loans which are relevant to us are private (or personal) loans, and business loans. If the vehicle which you want to buy is meant to be used only for personal purposes, then you would need to take a private loan. However, if the vehicle is to be affiliated with your business, then the loan to be taken would be a business loan. The major difference between both loans is that their interest rates are different. Also, there are several forms of repaying the different loan types.
Personal loans can either be secure or insecure. When they are considered to be secure, it means that there is a piece of personal property which is being used as a form of collateral in case of a default. The secure form is usually given to people taking loans for the first time or people with high levels of bad credit on a car loan in Oshawa. When they are insecure, it means that there is no collateral required. This form is usually given to people who have high credit scores (little or no bad credit).
Business loans are a bit different, and they can be taken in several different forms. They can be short term or long term, depending on the income of your business and the size of the loan taken. Also, some other forms require you placing pieces of equipment as collateral in case of a default.
2. Interest rate
Without a doubt, this is a very important factor to consider before deciding to go into debt. This is because the interest rate will determine the total outstanding amount that you will pay in order to settle your debt. There are a few reasons why your interest rate is either high or low.
First, if you have a good credit score, then your interest rates will drop over time. However, if you keep accumulating bad credit on your car loan in Oshawa, your credit score will be affected, and your interest rates will increase.
Secondly, economic inflation can affect your interest rate. If you borrow some money, and then there is an occurrence of inflation in the economy, the lender has a lot to lose, because the value of the amount of money that will be repaid by you will be less than the value it had when you borrowed it. To compensate for this drop in value, a lender might decide to increase the interest rates by a calculated amount. This makes the amount of money borrowed to eventually have the same value as the amount of money repaid. Unsurprisingly, the presence of inflation can increase the risk of you accumulating bad credit on your car loan in Oshawa.
Another important factor is whether or not a piece of property is used as collateral. Generally, the presence of collateral means that the lender would feel more comfortable about dropping the interest rates, since there is a way to regain the lent money in case of a default. However, if there is no collateral, then the interest rates are likely to be higher because there is a greater risk that the borrower would default. A bad credit score on a car loan in Oshawa, combined with the lack of collateral can give very high interest rates.
3. Loan amount and loan duration
Both of these factors above are intertwined, since one is usually dependent on the other. If you want to take a car loan in Oshawa, you need to know the cost of the car which you have in mind, so that you will have an idea of how much the loan amount will be. By doing this, you can calculate the amount of money that will be repaid, with the aid of the interest rate. This way, you know the exact amount that you will need to return to the lender at different regular payment intervals. If you have accumulated bad credit on a car loan in Oshawa, it will be harder for you to borrow high amounts of money as opposed to when you have little or no bad credit on a car loan in Oshawa.
Also, you need to know the duration of the loan, and how many installments you will need to make to clear off the debt. The duration is usually dependent on the amount which has been borrowed. In most cases, bigger debt means bigger payment duration. Conversely, smaller debt means smaller payment duration. Depending on the amount borrowed and the repayment policy of the lender, this duration can be anything within a few months to over 30 years. However, since you intend to get a car in Oshawa, the cost would not be too and should not take more than a couple of years.
4. Your earnings
This factor is quite important, because you would not want to take a loan that is a lot greater than what you earn. Thus, you should find a car whose cost is not too far out of your reach.
If you have high earnings, then you can decide to make the amount of your periodic installments to be high too. This way, you get to repay your debt within a short period of time. However, it has been advised that each repayment installment should not be more than 45% of your overall monthly earnings.
If your car is too expensive for your earnings, then you would be at risk of having a large percentage of your earnings being used as repayment each month. This can lead to you defaulting, and therefore earning a bad credit score on your car loan in Oshawa. The best way to resolve this kind of situation is to increase the total number of installments that you would need to make in order to repay the lender. However, the effect of this would be that the total time needed to repay the debt would be quite long.
All considered, if you stay in Oshawa, there is a good chance of you getting a loan at a decent rate.
When it comes to buying a car by making a down payment, the loan form is a bit different.
In regular conventional loans, an amount of money is given to the borrower by the lender after they have concluded details regarding interest rates and repayment method and duration. However, if you are in Oshawa and you want to make a down payment on a car, actual money is not given to you to purchase the car. Rather, you are given the car without needing to pay the whole cost. Though, before the car is given to you, repayment plans are discussed.
At the point of getting the car, you can be asked to pay an initial sum of money to kick-start the periodic payments. However, there are some lender organizations that give you the option of paying your debt at once, without needing to wait and pay in installments. This is due to the fact that you might suddenly get a large amount of money, and you might want to settle your debts instantly.
When it comes to making down payments, there are some advantages and disadvantages which arise.
Advantages of making down payments
1. Reduced debt amount
The larger the amount which you use as down payments, the larger the amount which you have to take as a loan and repay with interest.
For instance, you can get a car in Oshawa that costs $10,000. If you make a down payment of $2000, then the total amount of money that you would have to borrow will be $8000. If the lender is giving you money at an interest rate of 10%, then the amount of money that you would repay with interest will be $8800. However, if there is no down payment, the total amount that you would borrow would be $10,000, and your debt to repay will be an amount of $11,000.
So, to minimize the amount which will be lost to interest rates, making a down payments seems like a good choice. Also, this would reduce the risk of getting bad credit scores on your car loan in Oshawa.
2. Reduced repayment duration
When a down payment is made, the total amount of debt to be repaid in periodic payments is reduced. Therefore, the amount of time taken to repay the debt is reduced when a down payment is made.
Consider the example above where you make a down payment of $2000 for a car that costs $10000 in Oshawa. Your debt would be $8000 and the amount to be repaid is $8800. If the monthly payment is $200, then you would need a period of 44 months to repay your loan.
However, if no down payment is made, the total debt to be repaid is $11000. With a monthly repayment of $200, you would need a period of 55 months to repay the debt. This reduced payment duration also means a reduced chance of defaulting and acquiring a bad credit score of your car loan in Oshawa.
Comparing both loan durations, it is evident that down payments help reduce repayment duration.
3. Reduced interest rates
Usually, when you take a loan from a lender, a smaller amount of debt attracts a smaller interest rate. Conversely, a large debt would have a large interest rate. This is because the lender is at a greater risk by giving out a large amount of money.
So, the interest rate is increased to compensate for this risk. If you make a down payment, your debt becomes smaller, giving a possibility of a lower interest rate. From the example above, a debt of $10,000 would likely have a higher interest rate than the debt of $8000 which is reduced due to the down payment. The reduced interest rates mean that you have less debt to pay, and a lower risk of getting bad credit scores on your car loan in Oshawa.
Financial experts in Oshawa recommend that for your down payment to be really helpful, you should make sure that it is quite large. Most recommend that the down payment be at least 20% of the total amount of the car.
Overall, making a down payment can be said to be advantageous, since there are a couple of remarkable benefits attached to it. Down payments ultimately increase your chances of saving money and time when it comes to acquiring the car of your dreams.