Best Auto Loan Rates and Facts
For most people, buying a car is something that they have always dreamed of but that dream doesn’t seem feasible because they don’t have all of the cash right now. However, you can easily get an auto loan and make monthly payments to pay for the car while you enjoy driving it.
However, before you jump into auto finance, you should learn more about car loans before you get one. To help you get in the know about all things auto loan, here’s all the basic information that you ought to know about.
What Exactly is an Auto Loan?
An auto loan is a form of auto financing that can be acquired from either a financial institution or at a car dealership. An auto loan lets you make regular car payments throughout the life of the loan until the car is fully paid for.
Therefore, you get a car you want and it’s paid for by a bank or car dealer and you pay back the dealer or bank. Car loans are one of the easiest ways people can get cars, which is why more than 90% of Americans use car loans to get a car.
Where Can You Find Auto Loans?
You can find auto loans in many places. Most commonly, you can find car loans from banks and auto financing lenders. There are also online lenders who are willing to offer their financial services to people who want to own a car.
Alternatively, you can go to a car dealership to get a car. You can either get a new car from there or get second hand ones from a buy here pay here car dealership.
What Are the Benefits of Auto Loans?
As mentioned earlier, not everyone can afford to pay for a car in one go. Cars can be very expensive and many of us do not have that money lying around. Thankfully, that is where auto loans come in to help.
The main benefit that makes car loans so enticing is that you can get the car that you want immediately without having to pay for it in full at once. You just have to make car payments each month depending on the terms between you and your lender until your car is paid in full.
You immediately get an asset once you paid for the car in full. If you lease a car for instance, the monthly payment might be smaller, but you don’t own the car unless you take the option to buy the car once the leasing period is up.
However, that can actually be more expensive than just getting an auto loan. Additionally, paying for any damage for a leased vehicle tends to cost way more than just having your own car repaired. This is why many people prefer getting an auto loan over a lease.
A good benefit of getting an auto loan is that you are probably getting them from established lenders. As much as possible, we recommend that you don’t get random, unknown companies for auto loans because they could trick you of your money.
Established lenders from banks or car dealerships have a good reputation and are much trustworthy and will not pull any nasty tricks on you.
Pre-approval is also an option that you can get from some banks. If you get pre-approved for an auto loan from a lender, you can easily walk into a car dealership confidently.
In fact, you can be in a position where you can negotiate some of the terms of the car or loan to see if you can get a better deal. Additionally, car dealers will treat you like as a cash buyer, which has many benefits.
You can even find ways to save money with car loans. For instance, there are some places that won’t charge you for trying to pay off your car loan early if you have some extra cash to spare. By paying for additional months in advance, you can actually save a lot of cash on interest, because the interest is what builds up the cost of the car loan.
However, you should be sure to ask your lender first if they will allow you to pay it off early, because they can either penalize you for doing so or ask you to pay a fee.
The Disadvantages of a Car Loan
While there are many benefits that can come with a car loan, you still have to be aware of the disadvantages that could come with it. For instance, the interest rate can be quite high, especially depending on your credit score (we will get more into your credit score later).
The interest rate is how the lender earns from loaning you money, so it is understandable. However, the interest rate might be too high so you have to choose your lenders wisely.
Because you would be getting financing for a car that you want, it can be easy to get a car that’s actually out of your budget. You might be waltzing around the showroom and choose a car that’s more than what you can afford.
To avoid making that mistake, you shouldn’t focus on how much the car would cost each month. Instead, you should calculate a budget for how much you can afford for a car in total and look for a car that’s at that price. So when a car dealer asks you how much you are willing to spend each month, avoid that question and ask them how much the car would be in total and add the potential interest rate.
Insurance can also burn a hole in your pocket if you aren’t careful. If you are getting an auto loan, you are most likely getting a brand new car which tends to have higher insurance rates. While we don’t recommend on skipping out on car insurance because you never know what could happen, it is important to know that the insurance rates can be a pain.
There is also the risk of getting your car repossessed. However, this would only happen if you fail to make your payments for a certain period of time. If you skip a single payment or pay for one late, they won’t repossess it right away until the grace period is over. However that being said, you should still avoid skipping payments or paying car payments late because there are penalty fees, which means you would spend more money than what you would have to.
Money Saving Tips
You can save loads of money from paying early to avoid additional interest rates if the lender allows you to. However, there are still other ways you can save more money on your auto loan as well. To add to the fact that you can pay early, as your lender if you could pay half of your monthly loan payment every two weeks.
By doing so, you would have paid 13 months for the car in a year rather than just 12, which could greatly cut down the life of the loan to pay it off early and save on interest charges.
Additionally, you should try to find the best auto loan rates, because not all rates are charged the same. Basically, you should really take your time and “shop” around for lenders and get quotes from them to see who can offer you the best rate.
This will help you see what the lender will give you the best bang for your buck. However, you shouldn’t only look for low interest rates. You should always choose a lender who offers you good loan terms. However, the loan rate could also greatly depend on what your credit score is.
A credit score can make or break your loan, whether a lender will approve you or not, or charge you an insane amount of interest. People with good credit scores won’t have to worry much, because most lenders will readily approve them for a loan and offer them reasonable to even low interest rates.
However, people with poor or subprime credit scores may not have the same faith. To lenders, they would be a financial risk to take on and they might charge higher interest rates because of that. Some lenders might charge as high as 20% on interest alone, but you shouldn’t be so desperate to take on an auto loan with that ridiculous of a rate.
Credit Scores and Loans
If you have already done your research on loans, then you will find that a lot of them involve needing your credit score. A credit score is a score given to people based on their debt, payment history, etc. Therefore, if you know that you have a tendency to pay for bills late or have debt, you probably have a subprime or poor credit score.
Alternatively, you could even have a bad credit score just because you have never taken out a loan before! That is because you do not have enough proof of your credibility as a borrower, which can be troublesome to people who are actually financially capable of paying for loans.
There are some lenders who may not take much notice of your credit score. Some lenders specialize in offering auto loans to people with bad credit scores. However, these people might just promise a higher chance of approval but that does not guarantee that they will offer a lower interest rate.
Normally, an auto loan can have a lower interest rate if the life of a loan is longer. However, this can actually cause you to lose more money in the long run because you would be paying for more interest rates because of all of those additional months.
What you should do is look for lenders who understand your budget and needs to see if they can offer you a more reasonable interest rate. Typically, people with better credit scores can get an auto loan with an interest rate of 3-7% while a bad credit score would get more, but again that will vary from lender to lender.
You could always try to raise your credit score, but you have to be aware that this would take awhile because raising a credit score requires several methods without making mistakes that could damage your score.
Sometimes it will take months or even years to see a significant difference in your credit score. Typically, you can just start by paying for your bills on time, eradicating debt, etc., to start getting a better credit score.
To actually build a better credit score, it involves making some changes in your life. You will have to learn how to control your spending habits to avoid creating any more debt that what you already have. In addition to that, you should get rid of as much debt as possible, especially the balances on your credit cards. Building a better payment history is one of the most important things that you can do to get a better credit score, so make sure you start paying for your bills when they are due or before they are due.
Surprisingly, you can get a credit card to help you improve your credit score. If it’s hard to you get a normal credit card because of your credit score, you can opt to get an unsecured credit card that will be linked to your savings account because it is easier for people with poor credit scores to get this kind of credit card.
However, when you use this credit card you should make sure that there are enough funds in your savings account to pay for it when will be deducted to avoid getting penalties or a lower credit score. This will help you slowly increase your credit score by showing a better payment history.
You could also ask a credit repair company to help you fix your credit report. Since credit reports can have mistakes, the credit repair company will do their job by finding errors and filing disputes to the bureau to have them removed. Be aware though that this may not have a significant increase on your credit score, it just creates a more accurate credit report and you may not see a change until a few months have passed.
Be cautious for credit repair company scams, because scams will tell you that it will instantly increase your credit score and ask you to pay first. Legitimate credit repair companies will do their job and keep you aware that significant changes may not happen and will only ask for payment once they have done their job.
Buy Here Pay Here Car Dealerships
If you have a bad credit score and are struggling with lenders, the dreams of owning a car may seem bleak for you. You might also not be willing to wait for your credit score to get better and you might not be into leasing a car.
Thankfully, you still have other options going on for you. For instance, by far one of the most popular choices for people with poor credit is going to a buy here pay here car dealership for a car loan.
A buy here, pay here car dealership doesn’t take people’s credit scores into account. They would rather learn about their job history and monthly salary. That’s how they judge whether or not the person can afford to pay their loan off. Another huge benefit is that their car loans tend to be more affordable than most.
This is because they are offering you loans for their quality second hand cars rather than new ones (which could be an advantage to you since your car’s value won’t drastically decrease within a year and you can avoid high insurance rates).
Buy here pay here car dealerships are available in many places and they charge their interest rates very competitively to match the competition around them. There are times where you can even get one without having to place any down payment at all.
However, we usually recommend that you place a down payment because it makes the total cost of the loan lower, therefore you would pay less throughout the life of the loan because of the interest costing less, thanks to a lower loan amount. Some car dealerships even allow you to turn in your old car in place of a down payment to help you get rid of the old car as soon as possible and help you cover a large down payment for your newer car.
Getting the car that you need is not impossible. All you need to do is learn more about car loans from the information above and you will soon be driving off with your new car!