If you have decided to get yourself a new car, you might want to evaluate your financing options to ensure you don’t end up breaking your bank. Cars are getting expensive by the passing day, and for most people, purchasing them completely out of their own savings is out of the question.
Car loans are a suitable option, and with lenders providing competitive rates, scoring a great deal in today’s date is not impossible. However, you need to do your research and carefully assess a few factors to ensure the prospective lender is offering the best possible deal for your car loan.
In addition, it is essential to have a clear picture of how much amount you will be repaid at the end of the loan’s term, as well as the amount of interest accompanying your monthly payments. One great way is to use a car loan calculator that provides you with an accurate estimate of both of these aspects.
Important factors affecting car loans
While there are several factors influencing the total amount and monthly payments you make, the following 3 are the most important you should know about.
- The Annual Percentage Rate (APR)
This refers to the effective interest rate that applies to the amount of money the lender has loaned you. Several factors affect this rate, such as credit score, preapprovals, and others. A good way to know about APR is using a car loan interest calculator – it is simple and easy to use and provides accurate estimates without any hassle.
- The loan amount
This is the total amount of car loan you will be paying back to the lender. You can reduce its value by either making a large down payment, which will reduce the amount of interest or through a trade-in vehicle.
- The loan term
This is the period during which you will have to pay back the total loan amount to the lender, using a credit card or pocket cash. Generally, it spans 36-72 months. The rule of thumb is, the shorter the loan term, the lower the total amount you will have to pay.
Tips for finding the best deal for your car loan
Car loans can be manageable and affordable if you get a good deal from a lender. However, it is not always easy, because many lenders and dealerships tend to use cheap tricks and convince you to pay more than you should for your car loan. Here are a few great tips you can use to get the best deal for your car loan.
- Check your credit score
Whether you are seeking a low APR and interest rate or thinking of trade-in your existing car to get your hands on the car you wanted for a long time, you need to be aware of your credit position. It is essential to focus on credit building before you start looking for car loans. If you want to get a report of your credit history and review your score, you can do so for free from one of the major credit reporting agencies, namely, TransUnion, Equifax, and Experian. Thoroughly go through your report, and check if there are any inaccuracies or errors that may be affecting your credit score.
Having a great or even reasonably good credit score is extremely important as it makes it easy for you to qualify for a car loan. Not only that, lenders offer better interest rates to people with good credit ratings – this is because your credit history shows you are good at making timely payments, and they have nothing to be concerned about you in this respect. However, some providers offer car loans to people with bad credit as well so you may want to look them up if your credit score is less than ideal.
- Get pre-approved
Most people think that it makes no difference to get a car loan before or after finalizing the deal for a car. You may not realize it, but there are many benefits of having financing lined up before you strike a deal with a dealership on your favourite car. When you are out shopping for an auto loan, it gives you a great opportunity to compare the interest rates that different lenders are offering.
Interest rates vary greatly among different lenders, no matter how good your credit score is. It is possible for a bank to offer an interest rate that is significantly more expensive than what other banks are offering. So, the more lenders you visit and bargain for a car loan, the higher the chance you have of landing a great deal.
Another benefit of getting a pre-approved auto loan is peace of mind. Finding the best deal on the car you want to buy takes a lot of time and effort, but knowing that you have the means to finance the purchase gives confidence and assurance. Moreover, you already know about all details of your auto loan, such as the interest rate and loan term, allowing you to plan ahead.
- Consider the trade-in value of your existing car
It is important that you know about the value of your existing car at the beginning of the buying process. There are several online sources that can provide an estimate.
Generally, these websites make estimates based on the condition, mileage, age, customization, and region you are residing in. If you want your car to fall under the excellent category, you can invest a few bucks in reconditioning it, as you can get a better trade-in value for it.
Moreover, if you are up for making the effort, you will definitely get more money by selling it privately rather than to a dealership in exchange for a new car. If you are going for a trade-in, you must know your car’s value beforehand so that you can negotiate a better deal with the salesperson and lower the total cost of your car loan.
Preparing for getting a car loan beforehand offers many benefits and helps in making a well-grounded decision. If you want to compare different loans from lenders, credit unions, and dealerships, you can use different online comparison sites to get accurate estimates and pick the best one for financing your new car purchase.