A car loan is a personal loan used to purchase a car and the loan is repayable usually in up to 7 years. If you plan to finance your next new or used car purchase, consider the following points in your car purchase decision-making. The reason: A misstep could cost you hundreds or even thousands of dollars.
Don’t let the shiny paint and glittering chrome obscure your financial vision. And don’t forget you can do much more than arrange your financing online.
- You are Shopping for Two Things: A Car and Financing
It’s easy to focus only on the car you want to buy. But in reality, you are shopping for both a vehicle and the financing to pay for it. Mix the two and you could overpay. This is the most important fact about financing.
Car loans can be sourced through dealerships and banks, credit unions, and finance companies.
The best practice is to shop around and get pre-approved for a loan before setting foot in a dealership so that you can weigh all financing offers.
- Good Credit Gets Rewarded
Your credit score provides insight into your credit history and indicates the level of lending risk that financial institutions can expect when lending you money. If your credit score is low (indicating you would be deemed a higher risk), you’ll pay higher interest rates and may need a larger down payment to ease the lender’s mind.
If your score is high, you’ll have access to the best financing options around, potentially even perks like zero-percent financing through the manufacturer.
It’s best to check your credit score long before you apply for financing, so you’ll have ample time to rebuild your score or correct any mistakes found on your credit report.
- Deposit
When financing a car, a large upfront deposit can initially sting. But it’s a benefit over the long haul. Cars depreciate and before you know it, you may owe more on a vehicle than it’s worth, known as “negative equity,” a side effect of long terms and small down payments. The more you put down, the quicker you’ll reach positive equity and the lower your monthly payments will be.
The content on this site is for informational and educational purposes only and is not intended as a substitute for professional credit or financial advice. Always consult with a licensed financial advisor/finance & mortgage professional before making any decisions based on the information you read on this blog.