Buying a car, whether new or used, can be a time of great anticipation and excitement. Through all the excitement, there are many things to be considered while looking around for that car. Some of what you can look at are what kind of car, gas mileage, how big, what kind of interior, wheels, how many doors, what color, and so on. Importantly, you will most likely need to consider your auto financing options unless you are fortunate to have saved enough money to buy a car outright.
Shop And Compare Auto Loan Financing Options
It is most important to shop around with various banks and financial institutions to find the best possible interest rate and the amount you are qualified to borrow. Some companies have a minimum requirement for the loan amount which could start at $10,000 and increase from there, and payable over variable periods of time. You can usually acquire loans for used cars as well as new, as long as the used one is under 7 years old.
Variable Rate Car Loans
Part of your loan shopping might expose you to interest rates and different types of interest rate plans. In general, there are two kinds. One is called a Variable Rate which can change from the beginning rate of the loan, depending on the market place interest rates. Over time Variable Rate auto loans do change which will change your monthly payment. In this case it is hard to predict how often or when your rate will be altered.
The advantage of a variable rate loan is that it typically comes with a lower introductory rate, but often will adjust up above market rates once the introductory period is over so be careful and make sure you know the exact terms of your auto financing.
Fixed Interest Rate Auto Loans
The other available interest rate is called a Fixed Interest Rate Loan. This rate will remain unchanged the entire length of your car loan until repaid in full. You'll know exactly what your monthly car loan will be and can plan on that in your monthly budget. If being on a limited income, then this will be the most suitable plan for your needs. Fixed Interest auto loans are advantageous over variable rate loans since the payment will never change. However, you could have a higher interest rate in the beginning of your loan if you compare it to a variable rate loan.
Secured Auto Loans Versus Unsecured Auto Loans
Another type of loan that you need to decide upon to finance your car is whether you want a secured or unsecured loan. It is possible to buy a car without using the car as collateral. If you do not need to put your car up as collateral in applying for a loan and you can just get the loan based on your credit and income then you are getting an unsecured loan. While this great because it means your car can't be repossessed if you default on the loan it does mean that you'll most likely have a higher interest rate. This type loan may be necessary when buying an older model used car since there is less value in its being used as collateral.
A secured loan is where you put up something as collateral in order to obtain the required loan amount. Typically, most often when buying a car you will use your car as collateral for the loan. If you default on your loan payments your car will be repossessed and then sold to get back the bank's loan money. An advantage in having a secured loan is the bank considers you a lower risk and therefore you are elligible for a lower interest rate.
Unemployment Loan Insurance
Unemployment Loan Insurance is an option you might choose if there's any uncertainty in your employment or physical condition. If there's a possibility of losing your job or a medical problem causing inability to continue at your place of employment, then loan insurance is protection for disability or job loss. Some loan companies even offer an interest rate discount if you include loan insurance.
How Long Can I Borrow Money For A Car?
When applying for a car loan, you'll have to consider the length of time you want to be carrying the loan payments. These can range from a year up to 6 years (or longer) and this time period is important in many ways. When choosing a shorter period of time, you'll pay a higher monthly amount, but will save on the interest expense paid out. If lengthening the loan, monthly payments are smaller and possibly more manageable to your budget, but your amount of interest over the longer duration of the loan would be considerably higher.
Pay Attention To The Extra Fees - Negotiate
Some lenders may add on extra charges for making loan applications. They can also add fees for checking loan information, then include processing fees. Choose a bank or financial officer that charges the lowest possible fees, and there are some who do not charge any additional amounts. There are a few banks who charge a small monthly service fee during the entire length of the loan, which can add up considerably over the years even if only a few dollars a month. One way to save on service fees is to have your car loan automatically deducted monthly from your bank account.
Understand Your Pre Payment Penalty If You Have To Have One
Another condition to check into thoroughly is whether you'll be penalized should you pay off your loan early. Sometimes it is written in the contract's small print, which is often neglected to be read and understood completely, is that there is a charge for prepayment of the loan. Banks would be losing the interest they'd earn each month on your loan.
Being informed and keeping all the above information in mind, should make it easier and more satisfying when applying for a new car loan.
