5 Key Things You Should Know When Getting a Car Loan

If you don’t have the funds to buy a car outright, you can always get an auto loan. If you have never been through the process before, it can seem a little daunting. That’s why we’ve listed 5 key things you need to be aware of when applying for a car loan.

Get Your Loan Pre-Approved

 This is important! Most dealers are eager to offer you financing, but you may get a better rate if you go to the negotiating table with a pre-approved loan offer from a bank or credit union in hand.

Know How Much You Can Afford

 There is a difference between how much you should actually borrow and how much you are approved for by the bank. As you are budgeting, consider spending no more than 15% of your take-home pay on the monthly car loan payment. Keep in mind that a car is not a one-time expense. You’ll also need to pay for things like insurance premiums, gas, maintenance costs, and parking costs.

Long-Term Loans Are Not Really Attractive

 A 60-month loan is a good choice. If you can, opt for a shorter repayment period, but not anything longer. The longer the term of your loan, the lower will be your monthly payment, but then, you should realize you will be paying more interest over time.

Your Credit Score Matters

 The applicable interest rate will depend in part on your credit score and credit history. A low-interest rate which is advertised by lenders is only given to people with the best credit scores. But low loan rates are not the only thing to consider. Always look at the total interest you will be paying over the lifespan of the loan.

Beware of Extra Charges in Your Loan

Apart from the car’s price, lenders may offer you the option to finance other payments related to your cars like the tax, license, insurance, and other charges. Remember this comes at a cost – higher monthly repayments and more interest over the life of the loan. So, avoid this if you can.

Before you take out a car loan, you need to think about how much you can afford to pay back each month. Keep in mind that a car is a depreciating asset, so there’s no point getting a huge auto loan that you can’t afford to pay back.