Everything You Need to Know About Getting a Car LoanSeptember 11, 2017
If you have your eye on a new or used car but you don’t have the money saved to buy it outright, you’ll need to get a car loan. These are very common because of how much cars can cost, and many lenders have them available. To get the best deal on your loan, it’s important to understand how they work and all your available options.
How a Car Loan Works
With a car loan, you fill out an application with the lender, and if you’re approved, the lender will pay for your car right now. You’ll pay it back over a series of installment payments. The amount you’ll need to pay back includes the money you borrowed, which is known as the loan principal, the interest and any other loan fees.
Types of Car Loans
The most common types of car loans are new and used car loans. With a new car loan, you can often receive preapproval on the loan before you choose the car. This makes it easier to negotiate at the dealership, since you already have the financing in place. Lenders may want you to find a car first for a used car loan.
There are refinancing car loans, which is when you already have a car loan, but you get a loan with a lower interest rate to pay off the original loan and save yourself money.
Lease buyout loans allow you to purchase a car you’ve been leasing outright.
Finally, there are rent-to-own loans, where you pay a loan payment and a rental fee for a car every month. People with bad credit typically get these types of loans if they don’t qualify for traditional car loans.
There are a few details you should look at to compare car loans. Perhaps the most important is the annual percentage rate (APR). This is how much the loan will cost you per year, and it includes the interest rate plus any loan fees,
It’s also important to consider how long the term is and if you can handle a shorter term with a higher monthly payment. Although many borrowers go with longer terms to pay less per month, this means that you’ll pay more in interest. Since cars depreciate, it’s also to your benefit if you pay yours off as quickly as possible.
You also need to decide if you can make a down payment and if so, how much you can pay upfront. This will reduce the amount you need to borrow, and it’s good to pay some money upfront if you can.
Applying for a Car Loan
To apply for a car loan, you’ll first need to evaluate your current financial situation, including your income and your credit score. Your income will help you figure out how much of a monthly payment you can afford, and your credit score will determine your loan’s interest rate.
Next, you can compare lenders and submit information to them for preapproval on a loan. The benefit here is that they can preapprove you with only a soft credit check. This allows you to check potential loan terms without affecting your credit score.
Once you’ve chosen a car, you can apply for your loan. This will be quicker if you already received preapproval on a loan. After the paperwork gets signed, you’ll have your car and you can start paying off that loan.
For the loan application, expect to provide your basic personal and contact information, employment information, your Social Security number, and information on your income and current debts. When you’ve chosen a car, you’ll need to provide information on it, as well.
You can apply for your car loan online, in-person at a dealership or another lender’s office, or by phone.
The Cost of Your Car Loan
You’ll want to consider the monthly cost and total cost of your car loan. When you compare loans, make sure to look at their APRs and factor in any rebates you can get if you’re purchasing a new car. The loan terms are important in evaluating the total cost of each loan option.
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