While some people can conveniently get to work and run necessary errands without a car, many people rely on their car to get around town on a daily basis. Buying a new car can be expensive, and paying the full price in cash is often not a possibility. A car loan can
provide you with a convenient way to get the car you need now and to pay the sales price off over equal payments.
Understanding the Car Loan
You can apply for a car loan with a bank, a credit union or other financial institutions. While many lenders require loan applicants to have a good credit rating, there are bad credit auto loans available as well. This gives most people the ability to get the financing they need.
Limits and Amounts
There are two main factors that will determine the maximum amount you can borrow through an auto loan. These factors are your personal income and expenses as well as the vehicle itself. The lender will review your income and credit report to determine how high of a monthly payment you can afford.
In addition, the value of the car will be considered. Some lenders may offer a loan on the full value of the car, but others may want you to make a down payment and to have some built-in equity in the car. Each loan program is different, so you may need to explore the options to find the right program for your needs.
What Types of a Car Loan Are There?
As you explore the loan programs, you may notice that there are two main types of loans available. A closer look may tell you which program is best for your needs.
Fixed Term Loan – :A fixed term auto loan is the most common type of financing available. The term is often between three and seven years, but there is some variation to this. With a fixed term loan, the entire loan balance will be paid in full at the end of the term. You will own the car outright.
Balloon Payment Loan – With a balloon payment, you may pay equal monthly installments for two or three years, and a very large balloon payment will be due at the end of the term. In most cases, car owners will either refinance to another auto loan or trade the vehicle in when the balloon payment is due. The advantage to a balloon payment option is that the initial payments are much lower and more manageable. However, because a large payment is due at the end of the term, you must have an exit strategy for dealing with this payment.
How to Apply for a Car Loan
If you have never applied for an auto loan, you may not know how the process works. When you complete an application, you may be able to finalize the loan and take the car home on the same day. The process is rather fast, but you should do some homework before you apply.
As a first step, review your budget to determine how large of a payment you can afford to make. Many people fail to budget properly for all expenses related to the new car. For example, your auto insurance payment will likely change. It is wise to request a quote from your insurance company for the new premium and to factor this into your budget before you buy the car. In addition, fuel economy may alter your commuting costs significantly. Repairs and maintenance expenses should also be taken into account.
If you have a trade-in, you should value your trade-in yourself online. Then, take it to the dealership to see if they are willing to meet the trade-in value. If not, you may consider working with another dealership or selling the car on your own.
You should also compare rates and terms from different lenders. Find the best offer, and get a pre-qualification letter. Then, talk to the dealership’s financing department to see if they can beat the offer. This way, you will know that you are getting the best deal possible on your auto loan.
When you apply, you often can apply online or directly through the dealership. Your credit report may be pulled. In some cases, the lender may ask to see your pay stubs or other documentation, but this is rare. Generally, you will find that the entire auto loan application process is simple and straightforward.
How Does Repayment Work?
After you have signed your auto loan paperwork, the car will be yours to drive away in, and you will then be immediately responsible for making regular loan payments. In most cases, the payments are established on a regular due date each month with a set payment amount. Some auto lenders will set up automated payments so that you never have to worry about sending the payment yourself. Keep in mind that the lender can repossess the car if you fail to make payments, and this can damage your credit rating. Many lenders also have an online feature that allows you to make payments online, check your outstanding balance and more.
FAQs We Know You Have
Applying for an auto loan can seem complicated and even overwhelming at times. There are many factors to consider as well as many lenders to choose from. These frequently asked questions may help you to walk through the process more easily.
Are There Differences Between New and Used Auto Loans?
Many car lenders offer different rates for new and used cars. Used auto loans generally have slightly higher rates as well as shorter loan terms. In addition, some lenders will not extend loans to older cars. If you intend to buy a used car, explore financing options available before you decide on a car you want to buy.
How Do You Pay for Car Taxes and Loan Fees?
You may be aware that there are taxes and vehicle registration fees due on new and used cars, and you also may have to pay loan fees to your car lender. The total of these fees may add up to a few thousand dollars in some cases. The good news is that these fees are typically paid through your loan.
Can You Refinance an Auto Loan?
Some people want to apply for an auto loan to refinance their existing loan. Perhaps you want to lower your payments or extend your term, for example. Refinancing an auto loan is easy to do. You simply apply for a used car loan and walk through the loan process.
Can You Pay Your Loan Off Early?
A car loan payment can be a drain on your budget. Many car loan payments are easily a few hundred dollars or more. With this in mind, it is understandable that you would want to pay the loan off early. You can typically pay more than the minimum amount each month, and you may also be able to make a lump sum payment. Talk to your lender to confirm the details related to your specific loan.
Car loans make it fast and easy to purchase your new car. However, you may still need or want to put money down on your purchase. Take time to thoroughly research all of the options and to review your budget before you make a final buying decision.