InterestingRates

Money for the car

• Buying a car, second to buying a home, is one of the biggest single purchases people make in their lives. Most opt to borrow to buy, although few work out the difference between the loans on offer.

  Essentially, there are two types of auto loan: indirect and direct. The first is far more common but is generally less beneficial to the borrower.

• With an indirect auto loan, a car dealership or used car seller arranges the loan on behalf of the borrower by acting as an intermediary. Though some major dealerships offer attractive low interest rates to entice buyers, other sellers can rope the borrower into exorbitant interest payments. Watch what you agree to and read the fine print.

  If you opt for a direct auto loan, you may be better off. With a direct auto loan you arrange the details of the loan yourself with your bank, they hand over the money and you buy the car, giving you greater control over how much you pay and subjecting you to less hard-sell.

• Both indirect and direct loans are usually secured on the car, much the same way as the home you buy is used as collateral for a mortgage. In most cases the duration of the loan will be for considerably less than what is expected to be the useful life of the car. In addition, comprehensive insurance cover is usually required.