Things To Know About Your Auto Loan
Before you sign on the dotted line and drive off into the sunset, make sure you know what you are signing yourself up for with an auto loan. A new car brings new adventures and reliability, but could potentially strap you with too much debt if you don’t know these things about your auto loan.
Terms To Know
- Annual percentage rate (APR) – The additional amount you need to pay back to borrow the money you need, including interest and fees. The higher the APR, the more you owe during the loan’s term.
- Down payment – This is an upfront payment to the lender to demonstrate you have the financial capability to make a larger purchase, and also helps reduce the overall amount you need to finance. For a new auto, a down payment can be cash you have saved or the value from trading in another vehicle you have.
- Loan term – The length of time you have to pay back the loan in full, including fees and interest. The longer the term, the more you pay in interest in the long run.
- Monthly payment – How much you are expected to pay each month to fulfill the loan’s term while paying on the principal and interest.
- Principal – The true cost of the item you are paying for before fees, interest, and other costs.
What Affects Your Interest Rate?
Your interest rate determines how much extra you are going to spend in the long run. The lower the rate, the less you will have to pay. A good interest rate hinges on a good credit score. A good credit score is made up of:
- On-time payments
- Low credit utilization
- An established, long credit history
- Limited new credit applications
Too many missed payments or inquiries can take a toll on your credit score, leaving you with a poor interest rate the next time you need an auto loan or any other line of credit.
What Kind Of Financing Options Are There?
To buy or to lease? Either option will result in financing unless you have enough cash to pay outright.
- If you choose to lease, you are temporarily utilizing a vehicle from a dealership and making monthly payments, almost like renting an apartment. You can still finance the vehicle for however long it’s in your possession.
If you choose to buy, your next question is new or used? There are also finance options for buying a new or used.
- New vehicles have are brand new from the factory with virtually no miles on them. Buying new means you are the first owner and you don’t have to worry about how the vehicle was cared for by a previous owner.
- Used may require a bit more research. Used cars have one or more previous owners. After determining what type of vehicle you want, you need to find used options that are in good condition.
How To Qualify
If you are ready to take the next step to a vehicle purchase, you can get pre-qualified at a financial institution. Getting pre-qualified allows you to go car shopping with a number in mind. You can search for the right vehicle while staying within budget. Or, you can wait to get to the dealer. Dealers have onsite financing that they outsource from other financial institutions. They shop for the best rate for you and let you focus on picking the right car for your lifestyle.
However you choose to buy, you will need the following before signing on any dotted line:
- A down payment or current vehicle registration if doing a trade-in
- Your driver’s license
- Proof of income amounts
It’s also best to get a rough idea of your credit score before making any large purchase, so you can get an idea of what kind of rate you will qualify for.
Once you choose a vehicle to buy, it’s a matter of choosing a term, getting an interest rate, and approving the final amount. Then you are ready to drive off the lot!