LONDON – Cars can be expensive, but they are worth it. If you want to buy a car, and you don’t have the money, you can apply for an auto loan. Following we are describing different types of a car loan, with their pros and cons.

Standard Loan

This is the simple loan which you acquire via a bank, credit union or other such company to buy a new or used car. This is the most basic loan but needs the financial capability to make it through the application process. This loan gives you the freedom to handle your money, but you don’t get any great benefits other than keeping your car if you were good.

Novated Lease

If you have ever been with a company that offers car loan as an employee benefit, then you should know this type of auto loan. Novated Lease is a three-way agreement in which the employer takes a portion out of your salary in exchange for the vehicle benefit. Your employer pays the financier via novated deed on your wage as you lease the car directly from the financier. The downside is all expenses of the car are on you. Moreover, then the employee contract ends, the car is your responsibility without pre-tax income.

Finance Lease

This is the type of auto loan in which the financier buys a car and leases it to you.  You can have the car for immediate use with no capital outlay. But you are needed to pay a monthly repayment and are financially responsible for trade in the residual risk along with maintenance of the vehicle.

When you come towards the end of your term, you can either choose to buy the car, return it, or get a better one for your residual amount. The benefit of Finance lease is you have low and fixed interest rate because finance is secured against your vehicle.

Operating Lease

This is the agreement in which your financier buys the vehicle and rent it to you. The difference between this and finance lease is the owner will remain to the lender. The advantage is you don’t get any risk with the ownership of the vehicle, even the residual at the end of payment. When the terms come to their end, you can buy the car, or lease another one (new).

Commercial Hire Purchase

When the financier is buying a care and hires it to the consumer, it refers to commercial hire purchase. It doesn’t matter whether the loan was for an individual or business, payment plans stay the same with these types of auto loan. The customer becomes the owner of the vehicle when he has submitted the last payment.

Chattel Mortgage

This is very similar to commercial hire purchase auto loan, for this loan the financier advances money and holds a mortgage over your car. This is used as your security for the loan. Customers finance the total purchase price, submit their upfront and finalize the deal. A residual payment is decided. The only difference from mortgage payment is you can take ownership at the time of purchase.