Car Loans 101
Most people use car loans to buy a new vehicle that costs more than they have in cash. If this is the case for you, what should be an exciting time could turn frustrating if you do not know where to begin. You should learn a few facts about financing a car before you sign any papers that commit you to making payments for years.
Pay Attention to the Interest Rate of Car Loans
It usually seems easy to get everything done at one place, such as the dealership, since most offer financing. However, you do not tend to get the lowest interest rate from such providers of auto loans. In addition, it is hard to compare the interest rate you are given to the rates other lenders offer without leaving the dealership first. This is why it is usually best to find out the interest rates offered by your bank, or even nearby credit unions, since they are typically a little lower than dealerships. If anything, this at least allows you to compare a few rates for car loans.
Look at All the Aspects of the Loan
Even if you get a great interest rate and a low price for the car, it means nothing if you cannot afford the monthly loan payments. Make sure they fit into your budget easily every month. Otherwise, you risk getting the car repossessed, which is costly for your credit score, and just plain embarrassing. For this reason, it is best to consider your budget before you finance an auto.
At the same time, if you are getting a low payment but the interest rate seems high, you could be overpaying. Many payments for car loans fit into the average consumer’s budget, but they might not make sense financially because the interest rate is much higher than it should be. Provided your credit is good, you should be offered car loans that come with acceptable interest rates, so pay attention to this aspect before financing.
Consider Title Loans
Perhaps you are not interested in car loans that let you get a new vehicle, but the kind that get you money based on the value of your current car. Title loans use your car as collateral, which means that the more your car is worth, the more money you can typically get. These loans are best when you need fast cash, and they allow you to continue driving your car as usual. However, if you do not pay back the loan, your car can be taken from you.
No matter what type of loan you are considering, you should first get a copy of your credit score so you know what to expect. If it is excellent, you will have access to the lowest interest rates when you are shopping for a car. If it is not a good score, though, you may not be able to get a loan at all, at least not without paying a lot in interest. This is why you are urged to do some research on car loans before car shopping, as you need to know your options.