If you’re looking to purchase a vehicle, there’s a good chance that you plan on taking out an auto loan to finance it. This makes a lot of sense when you consider the fact that the cost of the average new car in the U.S. is $36,718. Due to the expense of purchasing a new vehicle, the used car market has also experienced an increase in demand, causing the cost of used-cars to increase. It’s little surprise then, that according to Forbes, in 2017, the number of American’s taking out car loans soared to 108.66 million.
Taking out a car loan is a big commitment and should be researched thoroughly before you take the plunge. Here are five tips that you should keep in mind when getting an auto loan.
Your credit score heavily impacts the interest rate and terms you will be offered on your auto loan, and ultimately how much it will end up costing you. In general, the higher your credit score, the more favorable your loan terms will be.
Unfortunately, if you have a credit score lower than 600, you will be classed as a risky borrower, and therefore more likely to default on your loan. In contrast, if your credit score is higher than 660, you can expect to receive a much better interest rate and loan terms on your auto.
It’s prudent to secure your financing before you start shopping for your new car. This is because a pre-approval allows you to understand how much you can afford to borrow before you hit the car showroom.
In addition, having a pre-approval enables you to see how much your interest rate will be. This can help calculate how much you’re ongoing costs and expenses will impact your monthly budget.
Preferably you should start applying for your auto loan around two weeks prior to purchasing your new vehicle. Interest rates change frequently, and you may have to pay a higher rate than you anticipated if you apply for your loan too prematurely — however, if the rates go down, you can always make another application.
The price tag on your new car isn’t the only cost you need to consider when you leave the forecourt. For example, most states charge a sales tax, which can be as high as 8% of the car total. There are also other costs to consider, such as title fees, licensing fees, dealer fees, and your interest charged.
If you’re planning to upgrade your vehicle, you should also consider how much your vehicle insurance will increase by. When financing your auto purchase, the lender will typically require you to take out comprehensive insurance coverage. You may also need to take out a gap coverage policy that protects you from owning the difference between what your insurance pays out and what your outstanding loan balance.
Although you might be tempted to go straight to a bank to source your auto loan, you may be surprised to hear that car dealerships often offer affordable financing deals too.
Car dealerships often offer introductory interest rates to new customers looking to buy a car, especially at the end of the year, when they’re eager to sell existing inventory. It’s also useful to note that newer car dealers typically have preferred lenders they work with and are able to offer lower loan rates.
When you’ve conducted your research, and know what car model you want to purchase, it's time to start shopping around for rates. The best place to begin your search is online, via comparison websites. This is the best way to find and compare real-time auto loan rates so that you can budget accordingly.
If you’re looking for a convenient and fast way to find your auto loan, there are plenty of sites that allow you to apply online with a quick application form. This gives you a solid grounding when it comes to figuring out how much you can afford to spend. It’s crucial to shop and compare lenders because your interest rate can significantly affect your overall costs.
Sources: https://www.cnbc.com/2019/10/22/car-prices-are-rapidly-increasing-heres-why-thats-bad-for-americans.html, https://www.forbes.com/sites/niallmccarthy/2019/01/03/the-number-of-americans-holding-auto-loan-debt-shows-no-signs-of-slowing-down-infographic/