First-time buyers should also be wary of financing deals that sound too good to be true. Weigh your options and get the best deal.
Buying a car is a tough financial commitment. It might take some help to get all the money for it, but that’s exactly why car loans exist.
Getting a car loan is a relatively painless process, but there are quite a few steps involved that can make it a bit confusing to a first-time buyer. We’ve got you covered if you’re looking for more information about getting a car loan, and what it all means to get saddled up with auto financing.
WHAT IS A CAR LOAN?
If you don’t have the $20,000 or more to purchase a new car, you’re going to have to borrow it from someone. When it comes to borrowing money for any circumstance, there’s going to be a few terms about re-paying the loan. A car payment is separated into the principal amount and interest. Principal is the term used to refer to the actual amount of money being borrowed. While some financing deals offer 0 percent financing, other financing terms require you to pay interest owed on the loan amount.
Agreeing on a car loan also involves a length of time, normally in months of how you’ll pay the borrowed money back. Car loan terms can be anything from 12 months to 72 months or even more in some cases. Knowing your budget and long-term financial situation should help you decide whether you can take a shorter term with higher payments, or a longer term with lower payments.
WHAT KIND OF CAR LOANS ARE THERE?
You can actually shop for a loan, and it’s a good idea to look for a loan before you look for a car. Start by seeing your bank’s interest rates and loan costs. Your bank will usually offer you a good rate since you’re already a customer and they know your financial history.
A credit union is another place you can shop for a loan, which can be cheaper than the bank, but you may need to be a member. Homeowners may also take a home equity loan and pay for their car with cash, helping to reduce the pressure of interest on the car payments.
Finally most auto manufacturers provide their own in-house financing companies at new car dealerships. These companies compete with the banks and credit unions. Remember though, the goal of these companies is to get you into their brand’s cars, so they will likely offer the easiest and best car loan rates. When it comes to buying a used car, however, the dealership may have another financial institution to provide you with a loan, and often at a rate that benefits the dealer and not you.
Getting a good rate on your auto loan depends on your credit history. If you’ve missed payments in the past, or have a bankruptcy history, then you might not get a loan at competitive rates. Be sure to check your credit history before even shopping for a car loan, so you can correct any mistakes and get the best interest rate on your loan.
LONG-TERM VS SHORT-TERM
It’s important to understand how much you’ll be spending on a longer term loan. While it does help reduce the monthly payments, you end up paying more money …