Get driving with a car loan
When it comes to car loans, you have a lot of options. Thus, it's essential that you understand how they work before you start shopping around. Auto loans function a lot like mortgages – you offer the largest amount you can as a down payment, and finance the remaining cost at an annual percentage rate of interest (APR) which is applied against the outstanding balance.
Auto loans are typically available from more sources than other loan types, such as personal loans or small business loans. You can get them not only from your bank or credit union, but also from online lenders or the auto dealer.
Auto Loan Advice
There are a lot of questions to ask your lender when shopping for car loans. First, you should always know exactly what the interest rate you'll be paying is. Some financiers display interest rates that only apply for the first year or so of the loan, which will be replaced by higher rates when the introductory period expires. Be direct in your questions and you'll get honest answers. If you're shopping for an online auto loan, make sure you get answers to your questions in writing (via e-mail).
You should also find out if there are any penalties for paying the loan off early and, if so, what they are. Most lenders also hit you with finance charges; while this is common practice, there's no need for you to pay an exorbitant finance charge just to get a slightly better interest rate. Always do the math to see which option is cheapest in the long run.
Ask what the lender's policy on auto loan refinancing is. It's a good idea to have an auto refinancing option available to you, in case unforeseen circumstances tap your finances and you need to relieve some of the burden by getting lower monthly payments.
Potential Pitfalls of Auto Loans
Whether you're getting an online auto loan or a having a bank or dealership finance you, there are some common conditions attached to car loans which you should be wary of. First, treat offers of a 0 percent APR with caution. These financing offers generally require you to make high monthly payments so you pay the whole loan off quickly. That monthly amount may be more than you can afford.
Keep in mind that dealerships are just middle men for other lenders, usually banks or credit unions. The dealer will want to profit from setting up the loan, so try to avoid this unnecessary expense if you can by dealing directly with the lender.
If you're seeking a bad credit car loan, keep in mind that you'll usually have little choice but to accept a high APR. A better option is to purchase a vehicle you can afford to pay cash for, or at least one that you can put a large down payment on, leaving you with less money to finance with interest added.