When considering an auto loan for a new or used car, there are many things to consider before choosing a lender. While some choose to pay for cars in full with cash, most car buyers go through an auto loan company. With so many options, it is common to be anxious when deciding on a car loan. This is especially true with a rise in questionable lending practices as explained by the New York Times. To make sure you get the best rate with your auto loan, here are five things to keep in mind.
- Take your time with your decision. Rushing into an auto loan can result in a rate and term that isn’t what is best for you and your family. Ask questions about each approved loan, paying special attention to the loan term, interest rate, and total payoff amount. Don’t be too quick to jump on a loan that has the lowest payment. While that may work best for your family’s budget, it may also lock you into a high interest rate that will cause to you pay much more than your car is worth in the long run. This Forbes article explains the risks of long-term car loans even further.
- Know your credit. Tracking your credit score is relatively simple these days with apps like Credit Karma making your score available to you at the touch of the button. You are entitled to one free full credit report from all three major credit bureaus per year (Credit Karma only checks your score from two of them), so be sure you take advantage of these each year so there are no surprises. You can look here for more tips on cleaning up your credit score.
- You can always refinance. If you have already agreed to an auto loan and you find another loan down the line with better terms and better interest, you may want to consider refinancing your loan. This will feel a lot like a new auto loan, but another down payment is rarely necessary and your payment history with your previous loan will help you get a better rate.
- Always explore your options. If the dealership offers you several car loan options but none of the terms feel right for you, you have the right and the ability to seek out a lender on your own. You can check with your personal bank or credit union. Even asking friends and family about their auto lenders could help you find the best auto loan for your situation.
- Decide whether to lease or loan. People who like to always have a newer, up to date vehicle may prefer a leasing option. With an auto lease, you make an agreed upon payment every month for a certain term before you return the vehicle and have the option to lease a newer model. For example, a lease may require you to pay $425 per month for a 36 month lease on a new Nissan. At the end of the 36 months, you have fulfilled your lease agreement and you return the car to the dealer with the expectation that you will lease or buy a newer vehicle at that time. Buying a car of course means making payments on the same car until you have paid off your entire loan.
Before deciding on your car loan, the considerations listed above will help you make a decision that will work best for your budget and financial goals. Taking the time to think about the long term effects of your loan will help you avoid a decision that could cause you financial problems down the line.