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Car Loan vs. Mortgage Loan
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Refinance Rates,
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In the world of credit lending, car loans and mortgages actually share many of the same traits. Unlike credit cards (credit cards vs. Mortgage loans), car loans and mortgage lending are "secured" loans, meaning the lender has some assurance that if the borrower is no longer able to pay off the debt after certain conditions are met on the lending contract, the lender might be able to repossess the secured property. In the case of a mortgage, this repossession is called a foreclosure, while a car or truck loan simply results in repossession of the vehicle.
Secured loans, such as car loans or mortgages, are considered to be one of the more legitimate (and necessary) debts in our society. It is considered "OK" debt. Borrowing in order to buy a vehicle is considered a necessity because (outside of public transportation) we need a car to get to work! And this starts a cycle where we need to get to work to pay for the car. Eventually, the car loan should be paid off, and ultimately we own the vehicle. There are other situations, of course, but ownership should be the ultimate goal in any loan scenario. Some of the finer points of car ownership (such as maintenance) might mean that it makes more sense to look for another vehicle, in which case another car loan becomes a necessity. In the case of a car loan, credit lending becomes a riskier proposition for the bank: The longer the loan is held, the more the vehicle depreciates. Lending banks use statistical averages to determine potential depreciation for the vehicle. These averages combined with the borrowers credit rating (among many other more complicated factors) allow the lending bank to determine the interest rate for the car loan. The interest rate must be attractive enough to the borrower to pursue the loan, and still have the financial incentive to ensure that the bank remains profitable through the 5-years that the loan is expected to be paid off over.
Secured loans, such as car loans or mortgages, are considered to be one of the more legitimate (and necessary) debts in our society. It is considered "OK" debt. Borrowing in order to buy a vehicle is considered a necessity because (outside of public transportation) we need a car to get to work! And this starts a cycle where we need to get to work to pay for the car. Eventually, the car loan should be paid off, and ultimately we own the vehicle. There are other situations, of course, but ownership should be the ultimate goal in any loan scenario. Some of the finer points of car ownership (such as maintenance) might mean that it makes more sense to look for another vehicle, in which case another car loan becomes a necessity. In the case of a car loan, credit lending becomes a riskier proposition for the bank: The longer the loan is held, the more the vehicle depreciates. Lending banks use statistical averages to determine potential depreciation for the vehicle. These averages combined with the borrowers credit rating (among many other more complicated factors) allow the lending bank to determine the interest rate for the car loan. The interest rate must be attractive enough to the borrower to pursue the loan, and still have the financial incentive to ensure that the bank remains profitable through the 5-years that the loan is expected to be paid off over.
Refinance Rates
Purchase Rates
Refinance Rates,
Refinance Rates
Purchase Rates
Purchase Rates,
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Car loans are considered less "safe" to a bank, because a car is still a luxury item and it goes down in value. There are many cases where if a person is unable to pay off their current car loan, the bank can surely repossess the vehicle; but they might end up not getting the full value of the loan back, in the long run. For this reason, car loans have lower interest rates than the average credit card loan, but slightly higher rates than a mortgage.
A mortgage will typically last much, much longer than a car loan. A Mortgage loan is typically no more than 30 years, and will have a lower interest rate than the typical car loan. Mortgage lending is considered to be a safer investment than car loans. In a normal economy, home values typically increase. Without considering recent financial crisis nationwide, this statement generally holds true. For this reason, the bank can be reasonable certain that there WILL be long term profit overall, even if individual loans might default occasionally. This certainty allows banks to offer a lower interest rate for mortgage lending than for car or truck lending. Furthermore, if the borrower defaults on a home loan, the bank can foreclose on the property in some cases. This scenario might end up more profitable for the bank if the home does, in fact, appreciate in value. If the home can be re-sold for a higher value than the balance on the loan, the bank could potentially come out ahead (as long as the new borrower is able to pay off the new mortgage!).
The individual borrower should always try to make the best decision for their own situation when they are considering taking out a loan. Always understand the options of your car loan or mortgage, before you sign that paper! The rates might be better than a non-secured loan (such as a credit card) but the borrower also has much more at stake if they are unable to pay off the loan. The borrower should typically strive for the best mortgage rates possible, and with current interest rates still at a near all-time low, it is a great time to evaluate one's options.
A mortgage will typically last much, much longer than a car loan. A Mortgage loan is typically no more than 30 years, and will have a lower interest rate than the typical car loan. Mortgage lending is considered to be a safer investment than car loans. In a normal economy, home values typically increase. Without considering recent financial crisis nationwide, this statement generally holds true. For this reason, the bank can be reasonable certain that there WILL be long term profit overall, even if individual loans might default occasionally. This certainty allows banks to offer a lower interest rate for mortgage lending than for car or truck lending. Furthermore, if the borrower defaults on a home loan, the bank can foreclose on the property in some cases. This scenario might end up more profitable for the bank if the home does, in fact, appreciate in value. If the home can be re-sold for a higher value than the balance on the loan, the bank could potentially come out ahead (as long as the new borrower is able to pay off the new mortgage!).
The individual borrower should always try to make the best decision for their own situation when they are considering taking out a loan. Always understand the options of your car loan or mortgage, before you sign that paper! The rates might be better than a non-secured loan (such as a credit card) but the borrower also has much more at stake if they are unable to pay off the loan. The borrower should typically strive for the best mortgage rates possible, and with current interest rates still at a near all-time low, it is a great time to evaluate one's options.
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