Types of Car Loans

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Types of Car Loans

Variable Rate Car Loans

Variable rate vehicle loans, similar to variable rate home loans, are where the interest rate may fluctuate against market conditions. This means that if the market interest rate increases, variable rates may also increase and vice versa. With a fluctuating interest rate, repayments will also fluctuate and it may be difficult to budget and anticipate the amount of each repayment.

Fixed Rate Car Loans

When the interest rate remains fixed for a predetermined period of time, it is called a fixed interest rate. The period of this loan usually spans between three and five years and acts as protection from moving market interest rates. Due to the repayments remaining constant throughout the life of the loan, it is easier to budget and can reduce the stress caused by unexpected increases in repayments. Fixed rates are often marginally higher than variable rates.

Line of credit through mortgage

Using your mortgage as a line of credit to fund a new vehicle purchase is where you withdraw money from your mortgage to purchase a vehicle. This is a great way to achieve one manageable payment over the life of the mortgage, although there is a harsh downfall. Lines of credit can be dangerous if you’re not disciplined with your funds, the added feature of withdrawing any time from your mortgage can add extra fees.

For more information see our Car Buying Guide

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