When you think of buying a car, contemplating the make, model, and color can be a lot of fun. However, when it comes to financing it, things are not as fun. While paying cash seems like the ideal option, it’s not the most practical option for most whether you’re buying a new or used car. Since vehicles are a necessity to meet our daily responsibilities, a car loan is a go-to option. The world of auto loans can be overwhelming, so the following points will help you understand how it works and what to look for when applying for one.
Credit Score
Do you know that your credit score is the most important factor that determines which type of loan you can get? The loan’s rate depends on how good a credit score is, whether you’re going through a bank or an online dealer. If you don’t know your credit score, you can check it online and ask for a free copy. You should know that not all lenders look at your scoring system the same way. Since all lenders have different criteria, the minimum score needed to qualify for a loan will vary depending on which company is financing it.
Where to Apply
Some people think that the best way to get a car loan is through a dealership. While this option can be convenient, you may end up paying a high-interest rate. Others prefer to deal directly with lenders as they tend to have lower interest rates. The reason behind dealers’ high-interest rates is because they add a financing fee plus the rate you’re offered when you apply for a loan. You can also look for online dealers, where you can find low interest personal loans that can help you get the car of your dreams. You need to find a trusted place where you can compare a wide range of secured car loans and choose the loan that is right for you.
Payment Plan
You need to be familiar with the sales tactics and approaches that dealers offer to entice you to get an auto loan from them. A dealer will explain to you your monthly payment and maybe offer you a longer installment plan that can reach up to 12 years. While this option can be tempting, you need to calculate the total cost of the car that includes the purchase price on top of the interest rate of the loan, plus any fees or penalties. Some dealers may suggest paying upfront to make the monthly payment more controllable, but this will make you consider another loan to cover the down payment.
Buying a car is one of the biggest investments you’ll make in your life. Therefore, you should think wisely before taking this big step. Whether you’re buying a new or used car, checking different loan options will pay off. Before applying for a loan, understand how it works and what to look for to find the right deal. Referring to this guide will help you have a better understanding of car loans.
