When financing a vehicle, you need to not only consider how much the monthly payments are but also any other recurring expenses you will be responsible for. Recommendations include:
Before you apply for a car loan, it is important to carefully check your credit.
Car loans usually have much looser credit requirements than credit cards or mortgage payments. Banks extend offers for financing to borrowers with poor credit for one primary reason: they can always repossess the vehicle if you fail to make your payments.
If your credit score is too low, however, you will wind up paying a lot more than necessary for the loan. Dealers know that borrowers with poor credit are usually so happy to get approved for a loan that they don’t even consider asking for a better rate. That means that bad credit car loans usually have extremely high interest rates and fees, adding to the total cost that you pay.
To save money, consider checking your credit score using a free service like Credit Karma. Once you know where your credit stands, you can then figure out which car loans have the best rates.
Increasingly people are using online car finance comparison sites like Carplus to finance their loans for autos. This is down to the fact they provide better deals and offer a far clearer and transparent service than the alternatives. They also allow you to compare the best rates and offers for you without impacting your credit.
Even though most advertisements from dealerships show exceptionally good rates, ranging anywhere from 2.9% all the way down to 0% interest. What they fail to mention, however, is that only people with excellent credit can qualify for rates like these.
If your credit score isn’t as high as you would like, shopping around for the best rate is essential. Having blemished credit means that you will have to pay more than you would if you had perfect credit. However, you don’t have to settle for the first loan offer that you receive. This is why a site like Carplus is a far better option for most people.
If you have exceptionally good credit, you usually will get the best rate by working directly with the dealership. Dealers typically act as brokers for more than one lender, making it easy to compare rates.
If your credit is less than perfect, however, consider getting quotes from online lenders before you begin shopping. By applying for credit online, you can get a better sense of how much interest you will have to pay and the highest amount that you can comfortably spend on a vehicle. The best part is, you can get pre-approved for a loan online without fully committing. That means that if the dealer offers you a better rate, you can always take their offer with no repercussions.
Local credit unions or banks may also be a good option if your credit score falls somewhere in the middle. These institutions usually have loans with interest rates that are quite competitive. These loans are typically available for both new and used vehicles. Getting pre-approved for financing can also give you some leverage at the dealership. If you already have a loan in place, you may be able to work with the dealer to negotiate a lower rate on one of their competing loans.
Loans with shorter terms usually have much lower interest rates. At the same time, the monthly payments are higher. The thing to remember, however, is that these loans cost a lot less over time.
Typically, dealers try to sell you a vehicle based on the monthly payment rather than the total price of the car. One way that they trick you into thinking that you are getting a great deal is by offering longer loan terms. This lowers the monthly payment without lowering the cost of the vehicle.
Another thing to consider is that banks often charge more interest for longer loan terms. This can add up to even more money that you have to pay in interest over the life of the loan.
Avoid the temptation to increase the length of the loan to get a lower payment. Cars depreciate quite quickly. That means that you will most likely be upside down on your car for the vast majority of the time that you are paying on the loan.
Another way to keep from getting upside down on your loan is by putting 20% down on the vehicle when you purchase it.
Even though this may seem obvious, dealers often waive the down payment requirement for buyers who have good credit. As tempting as it might be to take advantage of offers like these, you are also exposing yourself to a lot of risk.
What happens, for instance, if you unexpectedly need to sell your car? You may not be able to sell it if the remaining balance on your loan is higher than the value of the vehicle. Making a relatively large down payment is the best way to avoid a situation like this.
Dealers frequently offer to add any extra fees to the total amount of the loan. This might include sales tax, documentation fees, registration fees, and other expenses such as extended warranties.
If you choose to add these extra expenses to your loan, however, you will usually wind up upside down on your loan until you pay it down. In essence, these fees force you to take out a larger loan without increasing the value of the vehicle.