A car is the second most expensive purchase you can make after a house. It is a big decision and is a new step into life. Because this buying a car is so important, you must do extensive amount of research and planning, especially if you are looking into taking an auto loan. But do not be scared; getting an auto loan is much easier than ever before, but there are still some things you must know before agreeing to a loan.
The most important and helpful thing to make getting an auto loan is to get a pre-approved loan before entering any dealership gives you benefits such as better rates and a better price on the cars you are interested in. A pre-approved loan helps because it gives you a better position when negotiating and sets a realistic budget for you to choose your car.
When conducting your research, you must beware of the long term loans. It is known that having a longer period on the loan means that the monthly payments would be lower, but experts recommend not to get stuck with a loan longer than 60 months. The reason for this is that even though the payments are lower the interest would be higher. You can end up paying double or even triple the worth of the car you have purchased. Therefore, it’s better to be clear on the term of the loan, the monthly payments and the subsequent interest overtime.
Lenders use your credit score as the most important factor when considering loaning you the money for your new car. Not all lenders look at the credit score the same way and may have different criteria on the minimum score needed to qualify for a loan. The two important scores used widely by lenders are FICO Auto Score 8 and VantageScore 3.0. Therefore, it’s important to know beforehand, which score is considered by the lender you’re interested. To access your credit report, you can visit annualcreditreport.com that can be accessed once every twelve months.
The main difference between auto loans and other loans is that the car itself you are purchasing is the collateral. This means if the requirements of the loan are not met, the car itself would be repossessed. the requirements of the auto loan would include checking your income level, your employment status, and residency status to ensure that there is a steady flow of income. Another difference is that auto loans have significantly lower interest rates.
Something else you must beware is of extra charges. Lenders can offer you financing options that would include tax, license, registration and other charges. However, rolling these extra charges will increase your monthly payments and the interest rate. “A lower out-of-pocket expense today, however, comes at the price of higher monthly payments and more money spent on interest”. Some dealers may even offer to roll your current car loan into your new car loan, and it may seem appealing. However, remember it’s a hidden maneuver by dealers when they offer to "pay off what you owe" on your current vehicle. Doing this may increase your chances of being "upside down" on your new loan—owing more than it's worth. It can also result in higher interest expenses and increase the chances you'll fall into the same expensive cycle when it comes time to move on to your next vehicle.
Also keep in mind that the bigger the down payment, the less expensive the loan is and the shorter the time you will have it for. Lenders typically ask for 15-20 percent as down payment for auto loans. If you would like to lower your monthly cost and make the loan less expensive, experts recommend making a bigger down payment. This is a great opportunity if you don’t need the car right away; you can wait a while longer and save up additional funds for a larger down payment.
Here at Universal Auto Selma, we want to give the best advice and keep our clients at ease when buying a car and getting the right financial help. Although the points discussed above are basics, it often gets ignored and forgotten because loans can be confusing. Remembering these points before getting a car loan will help you to choose your loan terms more wisely and thoughtfully. Good luck on your research and shopping.