A successful auto purchase does not end in choosing the right car being offered at a decent price. If you are going to borrow some money for your car purchase, then the decisions you make on an auto loan is very important. For years, auto loans have been very helpful to first-time car owners as it gives them the privilege of getting a car even when their available cash is not enough. However, in order to ensure that you are going to get a fair deal, here are some of the things to consider before signing an auto loan contract.
Sources of Financing
There are different ways on how to finance your car, and each has its own pros and cons. Thus, it is important to familiarize yourself with the type of financing your auto loan has.
– Dealership: The good thing about dealership is that it is convenient, fast, and most of the time, competitive. However, you will probably be overwhelmed with the add-ons you do not even need, and the loans that offer this are usually front-loaded– payments are made up of more interested at the start.
– Buy Here, Pay Here: These auto finance companies are an option for people who have bad credit, but need a reliable vehicle so they can get to and from work. Of course, the interest will be higher, but when you are out of finance options and public transportation is not available, a bad credit car loan with a buy here, pay here finance company could be the best deal for you. These types of arrangements are not the same as title loans which are completely different.
– Bank or Credit Union: The service is personal and you will be informed if you will be paying a lot for a car. Likewise, you can also get a life insurance and disability insurance for free.
– Home Equity Loan: This can be deducted from the taxes, but you will be tying your car to your home.
Determine the Rate
The interest rate related to getting a new or used car differs. Usually, the biggest factor on the rate would be the credit card rating of the car owner. Your credit history, as well as your credit score would give the lenders an idea of how you spend your money, and the potential risks if they approve your loan. If your loan is seen as high-risk, expect that they might raise the interest rate. One more thing that could possibly have an impact the rate would be the length of the loan. Wherein, the shorter the loan, the lower the rate will be. However, the shorter the term, the higher the fees would be.
It is important to determine if there are additional costs that have not been presented clearly on your contract. Thus, aside from paying great attention on what is written, do not be afraid to ask if there will be penalty fees, and how much it is going to be.
Length of Term
For years, auto loan terms are getting longer and longer. What does this imply? Basically, although the monthly payments become lower, the interest expense becomes higher. Thus, you should be aware of the loans for used cars– this usually has a shorter useful life.
Early Payment Fees
Lastly, before you finally put your signature on the contract, check the fees that would be applicable in case the loan has been repaid at an earlier time. This could have an impact on the car owner in several ways. If you are thinking of trading the car, then you will probably be required to finish the existing loan first.