FINANCING OPTIONS FOR A CAR

Dealer and bank financing are the two major financing options for anyone who does not have all the amount needed to buy a car at once. Bank financing is usually the best as its does not limit one to a particular dealer. Instead, any approved amount can be used on any dealer without restrictions. Contrary to perception, a car is not an investment but an asset that depreciates over time. Depreciation may occur at a much faster rate than one is financing a given loan. Taking into consideration the depreciation aspect, doing extensive research should always come into play before one signs a contract for a car loan. Here are some the things to look out for before venturing into the murky waters of car loans.

CHECK YOUR CREDIT SCORE FOR CAR LOAN ELIGIBILITY

Credit scores check determine the kind of interest rates that one gets on any loan and the total amount as well. Knowing the credit score in advance allows one to be selective on the kind of lenders to approach. If there is anything wrong in the report, this would also be the right time to have any inaccuracy reported and corrected to improve the chances of getting a good car loan terms. Unlike other purchases, one can always have a car loan approved even with bad credit scores of below 700. The fact that car dealers and banks can reposes a car if one defaults on payments is one of the reasons why they are easily approved.

EXPLORE MULTIPLE LENDERS

Lenders are not required to offer the best rates when it comes to car loans given that they are in the business of making profits. When looking for potential lenders it is always important to first pitch camp at a local bank to get an idea of the kind of interest rates to expect. From the bank, one can explore car dealer’s rates as well as online lenders to compare finer details. Online lenders are some of the best as they allow one to complete the entire process online without having to move from one office to another. It is also important to investigate the reputation of a lender prior to signing any deal. Search online for reviews and comments from other people who might have dealt with them to get a clear view of their reputation in the business.

SHORT TERM CAR LOAN VS LONG TERM

Go For A Short Term Car Loan. It is always advisable to go with a short term car loan as this reduces the total amount that one ends up paying in the long run. While long term car loans reduce, monthly payments they tend to drive the overall cost high depending on interest rates. A good car loan is one where payments are made within 48 months as such a plan takes into consideration the fact that the car is depreciating. Short term loans might translate to higher monthly payments, but the fact that they allow one to get out of debt faster makes them the best.

DOWN PAYMENT

Committing to a down payment of up to 20% of the total amount at times increases the chances of one securing favorable terms on a car loan. The commitment essentially reduces the risk on a lender, making it easy for them to agree to good terms. A large down payment also makes it easy for someone to sell the car sooner than later given the reduced amount owed. Read the Fine Print before signing an agreement with a car loan dealer, take time to read the loan paperwork to have a clear idea of finer details. Some of the things to watch out for include mandatory binding arbitration that takes away the right of going to court. Variable interest rate allows one to have a clear insight on the highest possible payment. It will also be important to have an idea of the penalty at stake if the whole car loan is paid early.

Resources

1. https://cars.usnews.com/cars-trucks/how-to-finance-a-car
2. https://www.consumer.ftc.gov/articles/0056-financing-or-leasing-car
3. https://www.kbb.com/car-advice/articles/six-steps-to-financing/
4. https://www.bankrate.com/loans/auto-loans/9-steps-to-a-car-loan-on-damaged-credit/
5. https://www.finder.com/dealer-finance-vs-car-loan