For first time buyers, it can be a bit intimidating and confusing when you are looking at getting a car loan. There are numerous financing options and deals offered by car dealerships and manufacturers making your search tough. All you need is some good information, a bit of research and you’ll be on your way to getting that car loan you need.
Most people do not buy a car out right, cash on the table. In fact, about 70% of all new cars are financed and so are a large number of used cars. Whether you’ve picked out a car you want or not, take time to consider all the options there are for financing the purchase: a bank loan, a loan from a finance company, credit union, or even a professional organization if you have a membership that offers this type of assistance. You can also obtain financing through the auto dealership. Or you may have equity in your home that you can use for a loan at a pretty good interest rate.
Interest Rate Know-How
Your loan interest rate may vary depending on whether you buy a new or used car. Interest rates for new vehicles tend to be lower than those for second hand vehicles. Loan payment terms tend to be more generous for new cars and trucks than for used models.
Lengthy Loans
The longer the term of the loan, the more money you will pay in the long run. Some loans today can be financed over as many as 84 months. Many people get taken in with the idea of a lower monthly payment to help them afford expensive models. Since lengthy loan repayment periods often have larger interest rates, your needs may be better served by buying a less expensive model with a shorter repayment term.
Tempting Incentives
Some dealerships offer to pay off the balance of your existing loan. The catch is that if you agree to such a deal, you are actually adding the cost of the balance to the loan you need to get a new car. So, let’s say you are looking at a $20,000 new car and the repayment amount on your old loan is $4500, you actually have to borrow $24,500.
This kind of program can look really good, but in the long run you will pay more than you have to if you waited to pay off your outstanding balance before buying a new vehicle. If you must have a car immediately, go for one you can really afford. The slippery slope of financing a car may have you racing dangerously into debt.
Remember, cars begin to lose their value the moment you drive them off the lot. So look for a vehicle that you can afford based on a planned budget and its resale value over time. The most cost-efficient car loan will leave you with more of your money in your pocket.
