Unfortunately, the auto loan process can be a bit intimidating. In reality, it’s quite simple and can be navigated rather easily. Here’s everything you need to know about getting a car loan:
When going through the auto loan process, all you really want to know is what the monthly payment will be. The payments on your loan will be decided by the following factors:
- Amount of the loan. A larger down payment will decrease the amount of the loan.
- How long the loan is for, usually 3, 4, 5, or 6 years. Remember, while a longer term lowers monthly payments, it increases the amount you’ll pay over the length of the loan.
- Interest rate.
Your interest rate is the most confusing piece of the puzzle, so continue on to find out more about it.
What Factors Into Your Interest Rate
Your interest rate decides how much you’ll have to pay towards your car beyond the amount of the loan. A lower interest rate means you’ll pay less every month.
Many of the basics already discussed, like down payment, auto loan term length, and loan amount may factor into your rate.
Of course, a major factor in your interest rate is your credit score. According to FICO, the standard U.S. creditor, here are the five factors that your credit score is based off of:
- Payment history: are your payments made on time?
- Amount owed: how much do you owe relative to your total credit available?
- Length of credit history: are your accounts all brand new or established?
- Type of credit used: is it all credit card debt or are there other types of debt, too?
- New credit: have you been opening up a lot of credit lately?
If your credit isn’t strong, you’ll may need to find a cosigner or put down a larger down payment. Of course, a great way to get a deal is to shop around.
Besides the factors above, the institution you finance with has a lot to do with how favorable your car loan is. Just about every auto dealer will have their own financing available, but it isn’t always your best bet.
In fact, the Wall Street Journal suggests that shopping around is a much better option. You’ll often get much better terms from a local bank or credit union than you will from the dealer.
If you do choose to go with the dealer’s terms, see if they’ll give you a break on choosing to do so. They often receive incentives to use their chosen finance partners, so they may be able to pass some of those savings on.
Now that you’re ready to buy your first car, make sure you’re ready to get your license! Contact us here to learn everything you need to know about being a safe, licensed driver!