Purchasing a car is one of the biggest decisions to make as an adult, and an auto loan is an important contract next to a mortgage loan. Big decisions come with big responsibilities that need extensive research and planning. You must conduct research on the right car and the right auto loan to choose from. Lucky for this generation that getting an auto loan is much easier than ever before, but there are still some things you must know before agreeing to a loan.
Pre-approval is a word you always want to look for because it always results in positive benefits. A pre-approved loan offered before entering a dealership means you will end up getting a better price on cars and better rates as well.It also helps you as a consumer better it gives you a better position when you want to negotiate with the car dealer on financial matters in the purchasing process. Always try to find a desired dealer location where you can get pre-approved like at Keller Motors.
The benefits of having a long-term loan is having lower monthly payments, but what you don't know is that you end up paying more than what the car is actually worth by the end of the term. As experts, we always recommend our consumers to never get into a loan contract that is longer than 60 months. The reason for this is that even though the payments are lower- the interest would be higher because you are “borrowing” the money and “returning” it in a longer amount of time. You can end up paying double the worth of the car you have purchased. Therefore, it’s better to be clear on the term of the loan, the monthly payments and the subsequent interest overtime.
Your Credit Score
Your credit score is used to determine your purchasing ability in any big purchase situation, especially in purchasing a car. Lenders use your credit score as the most important factor when considering loaning you the money for your new car. Not all lenders look at the credit score the same way and may have different criteria on the minimum score needed to qualify for a loan. You can check your credit score beforehand using online resources, or by using your online banking tools. We recommend using your online banking resources because they offer the option to check your score monthly and without affecting or lowering it each time you access it. When you check before entering a dealership, you can properly assess your purchasing power. If you have a lower score than expected, you will also have the opportunity to raise it and get better offers.
Car is Collateral
There are alot of differences between typical loans and auto loans, the biggest difference being the collateral of the contract. In an auto loan contract, if requirements are not being met (meaning monthly payments) the car itself is the collateral that will be repossessed. The requirements of the auto loan would include checking your income level, your employment status, and residency status to ensure that there is a steady flow of income.
Know Your Budget
Your budget is a big factor that determines how much you spend, what you can get for your budget, and how to make the most out of it. There is a major difference between what you should spend and what you are approved to spend, and we are here to clear that up for you. You may need to analyze your financial situation and goals for this. Experts recommend spending no more than 15% of your take-home pay on the total cost of owning a vehicle. A vehicle’s total cost is more than just the principal monthly payment- it also includes insurance, gas, and maintenance.
The key thing to remember about down payments is that the more you initially put down, the lower the following monthly payments will be. Auto loan lenders typically ask for 15-20% as down payment for a new vehicle whether it is lease or buy. If you would like to lower your monthly cost and make the loan less expensive, experts recommend making a bigger down payment. This means that you should make sure to take time to save as much money as you can for the down payment and plan adequately to get the best offer you can.
Auto loans can be tricky to understand and navigate, but hopefully from reading this blog you have gotten all the important information to make the right decisions. Although the points discussed above are basics, it often gets ignored and forgotten. Remembering these points before getting a car loan will help you to choose your loan terms more wisely and thoughtfully. Good luck researching, you can always reach out to our financial experts here at Keller Motors for further assistance.