Buying a car is a big decision to make. There are a lot of things to consider beforehand. Apart from choosing the right car for you and your needs, there is the financial part.
If you don’t have all the money from the beginning, then taking a car loan may sound the best solution in the long run. The good news is that there are a lot of auto loan companies on the market nowadays, and the options to choose from are plenty if you want to buy either a new car or a used one.
The rates differ, and other conditions too, depending on the type of car that you want. The average APR differs also for each credit score, and the overall APRs are higher in the case of the used car loan. Also, you have to know that different lenders may be suited better for a new car, or maybe for a used car. For the most popular auto options market in 2020, read more here.
Even so, a decision in this regard will have to be thoroughly thought, so there are 7 essential things to know before taking a car loan:
Know your budget.
OK, so you decided to have the auto loan, so basically the money, but that is just for the cost of the car itself. You will have to think beyond that when you will choose a car. There are many other expenses, depending on the car, like the fuel cost, the maintenance, the insurance, the taxes, and even the resale value.
Knowing how much can you afford to spend monthly – or yearly – with the car apart from the loan payment will help you make the best decision not only in choosing the car but also the loan. And don’t forget about the down payment – the initial payment – which some clients make. This will too have to be analyzed in your budget.
Check the interest rates.
Another financial thing to consider in the loan is the interest rates. Comparing the interest rates of the financial loan institutions or banks will help you make the right choice when it comes to repayment. The interest rates differ, but a low rate doesn’t necessarily mean the lowest overall costs. You will have to make good research to find out which is the best interest rate for your loan.
Check the credit score also.
After the budget and the interest rate, is equally important to have a close look at your credit score. It is a very important criterion when it comes to loans, and the lenders strongly rely on it to determine the loan repayment ability.
Everyone should know their credit score, as a lower credit score will mean a smaller amount loaned and/or higher interest rates. While you can’t change the credit score once you decide to fill for an auto loan, you can still find the best lender and loans for your score.
Have your documentation ready.
The financial institutions will verify a lot of papers and will ask you sometimes for more information than you expected. Having all the documentation ready when you decide for a specific loan at a specific lender will save you not just time, but may even save you that particular deal you were eying.
And is not just the credit score, but also the income proof, a bank statement, the proof of a valid address, financial history, and so on.
The loan payment period.
Then choose the right loan payment you can afford, and thus determine the loan payment period, or the length of the term. A shorter period will mean bigger monthly rates, but at least you will get this burden off faster. The payment time generally varies between one and seven years.
Think of the total cost.
On the other hand, having a longer payment period may seem more doable for your budget, but the total overall cost will surely increase. And the total cost is limited not just to repaying the loan but includes hidden costs too – taxes, delivery costs, dealership charges, and others.
Negotiate.
Last but not least, given all these financial costs, negotiate! And we are talking about not only the price of the car, but there are the interest rates, the monthly payment, the terms, and the deal overall. Keep in mind that if the deal isn’t what you really want out of that car loan, you should easily walk away, as there are plenty of options out there.
