The biggest and most obvious difference between a car and home loans is the size of them. Unlike personal loans, auto loans and mortgage loans have a lot in common but also differ in some pretty significant ways. Lenders will care more about your credit score, for example, on a home loan than a vehicle loan simply because the amount of money and monthly payments will be so much different. Even then, many people wonder what’s really different at all. If you’re looking to find out why home loans are not the same as car loans, read on.
Credit Requirements and Paperwork
A bank has more to lose when considering a fifteen to thirty-year term loan on what’s most often the biggest investment the average person will ever make; their home. Because of this, borrowers should know that the amount of paperwork, credit requirements, and even references and job histories will be much more extensive than for a car loan.
Because of the massive line of credit involved in securing a home, the amount of the down payment will differ too. Where a car loan deposit could be quite minimal, the money you are asked to put down on a home could be quite substantial.
With both home and car loans, the home’s value and car’s worth are considered. For someone with excellent credit, securing the lowest rates on the market likely won’t be a problem. But for those with credit challenges or blemishes here and there, things could get tricky when it comes to being approved for a new loan.
Liens and Securities
Getting a loan for a home is not something that looks the same for everyone. Where you might read up on how to fix the garage door and follow standard instructions, your individual circumstances will dictate how a bank views not only your creditworthiness but also rates.
The same is true for car loans. Maybe your credit isn’t great, and you’re hoping for a low rate. While you have a better shot with a car loan than you do for a home, the odds are that your interest rates will be a reflection of how the financial institution looking to fund you sees your level of risk. With cars, different than homes, there are other options. It’s possible for people with bad credit to put your car up against something else, for example. Backing the loan’s life against something else of value can be done when it comes to securing a deal for a vehicle. It’s much harder with a home.
Repayments and Terms
After reviewing your credit history and giving you loan options, lenders at banks for both cars and homes will talk to you about repayment plans. Like with a car, you’ll be able to make decisions about your terms. For homes, financing is generally fifteen or thirty years where, for cars, it can be anyway from three to six years on average.
Before making any serious decisions, consider where you plan to be in five years. Will you still be driving that same vehicle? Will you still be living in that home? Your finances and future goals will help you work with the bank for cars and homes to set your own terms. Whether interested in a
guide to financing home improvements three years down the road, or sure you’ll be trading your sports car in after you graduate from school, these are things to consider now.
In the end, the biggest difference between car loans and mortgages is the amount of money a person is borrowing. Because the lump sum of borrowed money for a house is much bigger than most vehicles, lenders tend to more carefully proceed with home financing. Because they stand more to lose, they will make credit approval and loan acceptance harder for you.
Regardless of what type of loan you are hoping for, the best way to increase your odds of being approved is to keep your credit rating in good standing, pay your bills on time, and explore all your best options when it comes to personal finance and lending advice. With the real estate market soaring now, it’s more important than ever that you know what you’re signing up for, whether it be home or car.
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