A guide to the best online auto loans and benefits of online auto lenders
Acquiring an auto loan isn’t as complicated as getting a mortgage since the criteria used in car loans is less complex. But still, you would want to know whether you can afford the loan before signing the dotted lines. If you are still a newbie in auto financing, you may want to know the requirements for you to qualify for the loan, the interest rates it attracts and how the loan will be repaid. Car title loans are types of secured loans whereby your vehicle title (either a car truck or motorbike) is given as collateral. You will also be required to pay a fee when borrowing. Thanks to the increment in online lending, you can easily get a car loan without setting foot in financial institutions. You also have the advantage of choosing from different lenders. There are a number of banks that allow borrowers to apply for the loan online. These include Wells Fargo, Chase Manhattan, Sun Trust, Union Bank of California and PNC Bank.
What do you need to qualify?
- Your credit history. Credit score is among the major considerations when applying for online auto loans. The higher your credit score the more likely you will qualify for higher loan amounts with lower interest rate. The lender will also want to confirm that you are not burdened with other multiple debts. If there are, the assumption of the lender is that you will have challenges paying back the debt. A debt- to-income ratio calculator is used to determine how much of your monthly income is used in paying various debts. Lenders have different requirements, but to stand a better chance, this number should not be more than 40%. If, for instance, your monthly income is $4,000, your total debt payment for that month should not exceed $2,000.
- Down payments. It is always better to pay a larger amount as down payment. When you are purchasing a new car, paying at least 20% of the buying price as down payment reduces the risk of owing more amount than your car value. A car depreciation rate is more than 25% within the first year of purchase. If you want to purchase a second hand car, a 10% down payment is preferable. If you have a poor credit score, paying more amount as down payment will give you the power to negotiate for better auto loan rates.
- Loan term. Loan term is the period which you are required to pay back the loan. A car cash loan term ranges from 3 to 6 years. There are also shorter or longer loan terms depending on your agreement with the auto lending company. If the loan term is long, you will spend less amounts as monthly payments. But the trick here is that you will pay more money in form of interest. This also means that the car will cost you more.
- The type of vehicle. If you buy an already used car, the purchase price will be lower compared to getting a new car model. But you can still purchase a new car with affordable rates of interest. Here are the reasons why;
- When you default on a used car loan, it is harder for the lender to resell your car
- Many lenders entice borrowers to purchasing brand new cars since they are expensive, which means that they will take more interest rates
- If you have a bad credit, chances are that you will purchase a used car. Lenders on the other hand will charge high interest to cover for the risk.
Where to get an auto loan
Most lenders offer car title loans. But just because you can easily get the loan doesn’t mean that you have to take one. There are also some pros and cons involved.
- Car manufacturers and dealers. You may go to a car dealer and love one of the brands they offer. If you do not have enough money to purchase the vehicle at the moment, the dealer will be glad to make arrangements. But you also need to be careful since most car dealers work with several lenders who provide car loans. You can end up paying a higher rate of interest compared to when you directly go to the lender.
- Banks and credit unions. You can also find out if your loan can be approved by a bank or credit union before finding a dealer. In this case, it is better to have your loan approved at your bank since they already know you. It is also easier to maintain one account. Credit unions, however, offer lower rates than banks. Besides, they have a more convenient lending criteria making it easier for borrowers with poor credit to access the loan.
- Online lenders. There is nothing more convenient than applying for a loan in the comfort of your own home. This is one of the advantages that come by requesting for an online auto loan. Another benefit of online loans is that the interest rates are relatively lower. But with the increasing rate of scam, it is important to do your homework and be sure that you are only working with a reputable lender.
What happens if you do not repay the loan on time?
One late payment will only attract a late payment fee. But if you delay to make your payment for more than a month, the late payment may be reported by your lender to credit bureaus. This will reduce your credit rating. If you default on the loan, your car may also be repossessed and sold to recover the money.
Shopping for the best online loans
Before taking out an auto loan, please review different lenders to find the best auto loan rates with convenient terms and conditions. If you have a good credit score, there are higher chances that you will qualify for an affordable loan. It may take some time for you to find the best lenders, but it will be profitable in the long run. Not all online lenders will reply to your request within an hour, some may take several hours or even a day. Also, not all online auto loan applications have a quicker approval. Lenders use different criteria provide the loan and while some will only take a few minutes in approval, there are others who will take several hours.
How to deal with auto loan dealers
These days, there are financial options available to almost everyone and some lenders also provide bad credit card loans. Dealers will try every means to have you buy a car and they also have lenders who are willing to offer financing to car buyers. The only way to know which financing option is best for you is by doing research before committing yourself to a lender. Finding a lender who offer affordable rates can be the best option for you.
What you need to know before applying for an auto loan
When taking out a loan with your car as collateral, you first need to ensure that you can afford to make timely monthly payment. You also need to focus on the value of the vehicle you want to purchase. If you tell the car dealer how much you intend to spend in a month, they may trap you into purchasing an expensive vehicle and increase the loan term to reduce the amount of money you pay per month. Then you will end up paying the loan for a longer period than what you planned for. As much as you can still get the car without making a down payment, paying an initial amount will reduce the cost of the car. Cars also depreciate at a faster rate. If you get into an accident, the insurance company will only pay for the current car value. This means that you have to find an alternative source to pay the difference between the car value and the remaining balance. If you paid a good amount as down payment, you won’t have to worry about such issues since you will be having some equity in the car.