Your Guide to Getting an Auto Loan
Take Charge of Your Credit
Make sure there are no surprises when the time comes to apply for an auto loan. Review your credit report beforehand to find out if there’s anything you need to fix. All American citizens are entitled to a free credit report, which you can take advantage of annually.
Know Your Budget
Use a car payment calculator to determine how approximately how much you can afford to spend each month. Keep in mind that this will fluctuate depending on the interest rate for which you qualify. However, even a ballpark estimate is important information to know when applying for an auto loan. This can also help you determine how much you need to save for a down payment, which is another important financing factor.
Consider Total Costs
What is APR and why does it matter? APR is the Annual Percentage Rate of the loan, which varies on nearly a day-to-day basis. The lower the APR, the cheaper your loan will be. For instance, a typical 5-year $25,000 auto loan at 6.5% APR will cost you nearly $1,000 more than an APR of 5.1%.
Secondly, consider the length of your loan. The loan term is important because it can substantially impact your monthly payment as well as your overall financing costs. Of course, a shorter term loan means higher monthly payments, but this will prevent you from shelling out more cash in the long run. For this reason, try to keep the length of the loan as short as you can afford.
You wouldn’t buy a car without shopping around, and you shouldn’t sign for an auto loan without exploring your options either. Credit unions, banks, online lenders or your local Leominster dealership are all valid alternatives to apply for an auto loan.
Keep in mind that there are more things to look for when searching for your ideal lender other than who offers the lowest interest rate. Things change, so flexibility in life is very important. Your auto loan should be flexible as well. Did you know some lenders actually charge you for making extra payments? Make sure you find a lender that will allow you to make extra payments or pay off the loan entirely without steep penalties. Be certain to read the fine print; some penalties aren’t actually called “penalties”.