Car Loans

Finding the Right Car Loan for You

When your car breaks down you don't always have the necessary funds to purchase a new one and have to consider a car loan. There are many loans available from different establishments such as banks or car dealers. There are variable interest rates, credit scores, contract terms and conditions to consider in addition to the type of loan you might be thinking of entering into. Use your time wisely to research some of the facts to ensure that you have compared the different loans sufficiently to help you choose one that is the most suitable for your financial situation.


What is a Car Loan?

A car loan is when you borrow money from a lender in order to buy a car. The money is then paid back to the lender over a fixed number of months with interest added. Repayment terms can vary considerably from one lender to another so it's important to find a deal that is within your budget.


Difference between a Car Loan and other Loan Types

As a car is a relatively small investment a car loan is always secured against the vehicle itself. This means it can be repossessed by the loan provider if the payments are not met. However, as a secured loan it should be available at more acceptable terms and interest rates which should help if you are having to keep to a strict budget. Many automobile loans only last for a short length of time and rarely last beyond seven years and as they are always secured they are not viewed as high risk. Therefore even customers with a poor credit rating can usually manage to sign up for a car loan. Being able to contribute financially by using your old car as a trade-in can help to reduce your liability and find a loan with a flexible schedule. Some loans even make provision for replacing a vehicle part of the way through your agreement.


How to get the Best Car Loan

It's important to be aware of your personal credit rating particularly if there are errors that could affect your chance of securing a car loan at an affordable rate. Many customers learn too late that their poor credit score has cost them hundreds of dollars more than necessary. Although a long car loan contract with a lower monthly repayment schedule might seem tempting it can actually be detrimental. Cars deteriorate surprisingly fast and can often end up being worth much less than the amount you are still liable for on your loan. There is also the expense of maintaining an older vehicle and an increase in insurance. Always consider the long-term effect of your car loan on your finances and choose a loan that has a more balanced schedule. Although car dealer loans are the easiest of all to obtain, particularly online, you have to beware of them unless you have thoroughly researched the various loans on offer. Dealer loans are typically expensive due to dealers earning income from financial arrangements rather than car sales.


How to Find the Best Lender

When looking for an affordable car loan it helps to think of alternatives such as credit unions, banks or peer-to-peer sources. Some dealers might even offer ideal terms for your situation. Whenever you make an application for a loan your credit score is often lowered for a short time. Taking too long to fill out multiple applications will obviously prolong the effect and end up giving you a poor rating. Aim to be efficient and make your applications in a week or two to ensure they are viewed as just one inquiry. It can help to let lenders know they have some competition for your custom. Obtaining a pre-approval paper is beneficial as it shows a lender is willing to provide you with a loan. It can encourage other lenders to reconsider their deals and offer you an improved contract in order to gain your custom.


Things to Watch Out For

If you are not too familiar with legal terminology it can be difficult to understand the finer details of a car loan. Mandatory binding arbitration is a clause that often causes difficulties. It simply means that if you and your lender eventually dispute the terms of your loan it will have to be settled by an arbitrator in a law court. Many people like the option of being able to pay off a loan before the end of their agreement but some clauses can prevent this. Others demand additional fees or penalties which in effect are designed to keep you tied to your loan until its fixed term. When comparing interest rates on monthly repayments always use the highest to estimate affordability. Interest rates constantly fluctuate and are largely unpredictable. If your potential loan states the interest rate is variable it could significantly increase the amount you have to repay over the agreed term. Always ensure that you understand what is being included in your contract and if you and the lender have agreed verbally on certain issues you must be sure everything is included in writing. Most important of all, spend time doing some valuable research by reading reviews that enable you to make comparisons of the best car loan lenders.