Auto Loans

It is estimated that 7 out of 10 new cars and trucks are financed through auto loans. Used cars are also financed through auto loans. Financing your car requires you to do some research before you reach the car lot. When you begin shopping for an auto loan you need to determine how much you need to finance, how much you should put down as a down payment, how to compare auto loans, and what rebates may be available to you.

When you begin shopping for an auto loan, you need to first contact your bank or credit union. Many banks and credit unions will give their members lower rates since you are already a member. You should contact a lender before you begin shopping to see how much you can be approved for. A credit union generally has a lower rate than a bank. Of course you can always get a loan through the auto dealer or auto manufacturer. Usually the dealer or auto manufacturer will charge you a larger rate, but some will run specials that may be cheaper than an auto loan through the bank. The only way to know you are getting the best auto loan is to compare several rates and loan options.

You can also use a home equity loan to pay for a car. With a home equity loan, you will get a lower interest rate and the payments may be tax deductible. The only thing you need consider is how much your monthly mortgage payments will increase. If you cannot afford to pay the new amount, you could be in danger of losing your home.

When you begin shopping for an auto loan you will see that the interest rates on new cars are lower than used cars. New cars can also be financed over longer terms than used cars. This actually makes a new car cheaper than a used car in many instances. The interest can change and will not be locked in before you buy your car. The down payment details can also change dramatically if the value of the car you are purchasing decreases or increases.

If you shop for a car at a dealership, you will probably see a sticker price in the windshield that is a really low price. This tactic is simply to lure you into financing the car with the dealership because they will tack on additional fees when you finance the car. Some dealers won't budge on the price at all, instead negotiating with the interest rate for a specific car. Be ready to have a large down payment on a car like this because it will help to reduce your monthly payment amount.

Try to keep the length of your auto loan as short as possible. The longer the loan, the more it will cost you. Some lenders are offering loans that run longer than 60 months. A loan like this will leave you upside down in the loan. What this means is you will owe more on the car than what it is actually worth.

Shopping for an auto loan
When you begin shopping for an auto loan, you need to consider the following questions:

• How much can I afford to pay?
  
• What the interest rate I am really paying?
  
• What is the exact amount that will be financed?
  
• Are the penalties for late payment, missed payments, or for paying off the auto early?
  
• What is the exact amount of each monthly payment?
  
• How many payments will I have?

The interest rate is one area you need to focus on. The annual percentage rate (APR) is the best way to know how much money you are paying in interest. The APR is the actual interest rate you pay annually on the unpaid balance of the loan. The APR you are given will be determine upon your credit score and payment history on your credit report.

Some loans will assess a fee for paying off the loan early. Before you sign a loan contract, find out if there are fees for paying off the loan balance early. When you are at the dealer, don't allow them to send out your credit report to third party lenders. Not only does this put a slight dent in your credit score, it is a tactic used to finance your auto at a higher rate. They usually sell you the car and then two days later call and tell you they couldn't get you financed at the rate you were quoted. Then they will say they found you a lender who can finance the car at a higher payment. Before you buy the car, make sure you have the financing set in order. Tell the dealer you will come back for the car once the financing is set in stone.

Another thing you need to be weary about with an auto loan is credit insurance. Many lenders will demand that you purchase credit insurance. Credit insurance is not required by federal law and most insurance policies already cover credit insurance. If you must pay credit insurance due to state requirements, make sure it is included in the cost of your credit and check the APR to make sure you aren't over-paying.

While you may focus completely on the low interest rate, you nee to keep in mind it is only one of many factors that go into an auto loan. The APR is the best thing you can use to compare lenders loan options. Some APRs are really low because they have inflated numbers somewhere else in the contract. Many auto dealers will offer a rebate if you finance your auto loan through them.

With an auto rebate, it is important to know that everyone is eligible for a manufacturers rebate. You need to consider if the rebate will cost you more than the low APR. For example, is it cheaper to take a $1,000 rebate in exchange for an 8% interest rate or is it better to leave the rebate on the table and take the 5% interest rate? In order to determine if the auto rebate is worthwhile, take half of the loan amount and multiply it by the difference between the two financing rates. The leftover number will provide you with the difference between the two financing rates you are comparing. It is a great way to find out how much money you will be saving per year with the APR versus a rebate. If you have a good credit score, you will be able to get the rebate and a low APR. You can take the rebate from the dealer and you can get a lower APR from another lender.

When you are shopping for an auto loan lender, you should check online as well. There are several online auto lenders that are offering competitive rates. The nice part about an online lender is that they can offer you a great rate and approve you for a loan amount in a matter of minutes, allowing you to shop for a car with a set price in mind. If you can avoid financing with the auto dealer, you should. An auto dealer usually bumps up the auto loan rates of the banks and other financing companies that they do business with. This is how the auto dealer makes their money because they have worked out a partnership with the lenders.

When you are shopping for auto loans, you need to get at least 3 quotes from lenders. Study all the aspects of each loan to determine if you are getting the best price. If a lender is offering zero-percent financing deals, there is usually a catch. The lender needs to make money somehow off your loan. If you qualify for a zero percent financing loan, you need to be prepared to make large monthly payments. Generally a zero percent interest loan is 3 years or less. Zero percent financing may also include hidden fees, like a large down payment, a penalty for paying the balance of the loan early, or other costs. Read the fine print of the contract to make sure you aren't getting stuck with hidden fees.

The down payment is a great way to convince a lender you are willing to make an investment in the deal and can help persuade them to give you a lower interest rate. Placing a down payment on a car will also help you avoid losing money as the car depreciates. If you finance a car for 3 years and it depreciates by 30% to 50%, you will be "upside down" in your auto loan. Try to avoid becoming upside down in an auto loan by paying a down payment of 25% or more. If you put down anything smaller, you won't even be covering the costs of sales tax and other fees. If you cannot afford to put down 20%, at least consider shortening the length of your auto loan so you don't end up becoming upside down in your auto loan.