When you choose to purchase an auto loan, you’re making a financial investment into a necessary commodity for your life. This is most true if you plan to use the car for more than just commuting from point A to point B. In fact, having a car can make life much more convenient and help you save money. Auto loans can be leased through banks, credit unions and other financial institutes. Purchasing an auto loan enables you to drive a new or used car at a lower price than the initial sticker value, earn year-long tax credits, pay off the loan early without penalties and enjoy a larger credit limit than if you purchased the car.
If you’re thinking about buying a car, auto financing can be a source of confusion. It’s not uncommon for first-time car buyers to wonder what the difference is between an APR and a lease payment or how to identify all the fees associated with an auto loan. These unanswered queries often result in the car buyer picking the wrong auto loan provider. To help you avoid this expensive mistake, we’ve explained the basics of auto loan financing below.
How Should You Work out Your Budget Before You Apply for A Loan?
Before you apply for a car loan, step back and think about the overall cost of the car rather than just how much monthly payment you can afford. Compare the final price tag in terms of total monthly payments as well as the interest you’ll pay. That way, you’re going to be comparing apples to apples while you shop around. And don’t let a dealer “pack” your loan with features that may fit your budget but could have you paying a lot more to the lender in other ways (with a longer loan term).
Where Should You Look for A New Car Loan?
Some car buyers spend dozens of hours looking up and researching different vehicles online before even checking out the vehicle in person and taking it for the test drive. The same individual, when shopping for an auto loan, might opt for the first option presented by the dealership. While getting a loan offer via the dealership may seem convenient, you could end up paying a lot more interest over the duration of the loan term than you would have if you’d just gone to a bank or credit union.
What Factors Should You Take Into Consideration when You Compare Auto Loans?
Auto lenders have varied criteria for loan approval, and the terms that you receive can be quite different based on the lender. Some lenders, for instance, could ask you for a down payment. Shopping for a good loan can lead to significant savings, which is why it’s important to compare your options. When doing this, make sure to check what interest and fees lenders charge, the duration the loan is offered for, prepayment penalties, etc.
