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I was recently looking to buy a new car (with a tow bar) so that it could tow either the new boat or caravan I was also hoping to purchase. I did not have enough cash to buy outright so checked out the availability of an auto loan as well as a boat loan and caravan finance. Initially I had expected that an auto loan from the car dealership and the boat and caravan retailers would be the most attractive but I discovered that there were cheaper options available to me. I am on a reasonable salary so I could afford to make combined monthly repayments of over $2300 to the auto loan and one or other of the boat loan or caravan lease that I was considering. Initially I had thought that it might still be a bit difficult to meet the repayments on both an auto loan and a boat loan but I realised that you can actually "manipulate" the monthly repayment under both the auto loan and/ or the boat loan or caravan finance facility. How does one do this you ask? It all turns on the residual value under your auto loan or boat loan... or caravan lease as the case may be. If you decide that you cannot manage monthly repayments under the auto loan, boat loan or caravan finance you can ask to adjust the residual value to the maximum acceptable to the financier. If you have a high residual value under the car loan, boat loan or caravan finance you will pay less each month under the loan terms. If you have a much lower residual value under your car loan, boat loan or caravan hire purchase / lease then the monthly repayments required under the finance will be much higher because you are paying back more of the original auto loan, boat loan or caravan finance. While you may feel confident that the sale price of your car or boat at the end of the auto loan or boat loan period will be sufficient to meet a high residual value figure, you do need to be cautious because more often than not borrowers find that when they do sell, the sale price is not in fact sufficient to meet the required amount (the residual value) to fully pay out the auto loan, boat loan or caravan finance. Suddenly you have to find an extra say $3000 which you were not expecting. This can create financial difficulties for you or result in your having to take out an unsecured personal loan to fulfil your commitments under the auto loan, boat loan or caravan finance. To avoid this situation it is far better to try your very best to make higher monthly repayments during the term of your auto loan, boat loan or caravan lease. While including a lower residual figure under your auto loan or boat loan will mean a slightly tighter cash flow during the term of your auto loan or boat loan, it should save you from any nasty surprises at the end of the car loan or boat loan term.
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