Are you taking out an auto loan for the first time? There are a few things you need to know before you actually apply for one. Here are 4 things we want every auto loan first-timer here in Indianapolis to know and remember about auto loans.
1) You can get an auto loan from at least 4 types of providers.
There are at least 4 kinds of auto loan providers you can turn to when shopping for auto loans: banks, credit unions, dealerships and online lenders. Banks and credit unions almost always have the most competitive auto loan rates in the market. However, credit unions only cater to their members.
Dealerships can arrange financing for their buyers, but some also provide financing themselves. These are called buy here pay here. Rates offered by dealerships can also be competitive. But experts suggest trying to get an auto loan from a bank or credit union first before approaching a dealer. This is because dealership financing can be more expensive because of the markups.
Lastly, online lenders are widely available these days. Since competition in the worldwide web is tight and business is fast-paced, you can expect these lenders to offer low interest rates as well. But you should be wary of fraudulent lenders who use the platform to extort money from consumers.
2) Knowing your credit standing comes first.
Your credit is the priority when you’re trying to get an auto loan. You can obtain a free copy of your credit report through AnnualCreditReport.com. As for your credit score, we recommend purchasing it from FICO or any reliable credit-scoring firm. Free credit scores are okay but they give you less accurate idea of the interest rate you could get.
It’s important to check up on your credit before applying for a car loan because your credit greatly affects your auto loan approval and how it would cost you. You can get a higher interest rate and heavier penalties if you have bad credit which is indicated by a low credit score. On the other hand, you can get a good rate and better financing terms if you have good credit or high credit score.
3) There’s a great difference between short loan terms and long loan terms.
Not many borrowers realize this that’s why we decided to include this important point here. Short loan terms range from 24 to 48 months. Auto loan terms 60 months and above are considered long. How long you repay the loan affects its total cost that’s why you need to understand the difference.
Long loan terms make monthly payments appear smaller and more affordable especially when compared to shorter terms. But you pay more interest in a 60-month auto loan, for example, than in a 48-month. Short loan terms may seem to have bigger monthly payments but only when compared with long loan terms. The interest wouldn’t also accrue that much to make the loan more costly. You can use an auto loan calculator to compare the costs of two different auto loan lengths.
4) Long-term ownership costs should be included in calculating car affordability.
When setting your budget for a car, never forget to include ownership costs like gas, parking fees, maintenance, warranty, insurance, and repair. Any expense that you think will exist as you drive the car should be factored in in the computation of your car budget.
Finance experts say that the ideal amount you can pay for a car every month is the remaining amount from your monthly net income minus your personal expenses. This must suffice the auto loan payments and the expenses that were just mentioned.