Almost every American, at some point in their life, will finance a new auto with an auto loan. However, for many, this can become a huge hassle. The following points will make your auto loan or finance go more smoothly, and cost you less money
Auto Loan Finance: Know Your Credit Score
Know your credit score. Before auto loan financing, your credit will be checked, and you need to take into account the kind of interest rate you will qualify for before deciding how much you can afford to spend on an auto loan. You can get credit reports from Equifax, Experian, or TransUnion. If your credit isn't very good, an easy way to improve it is get a department store card, and pay your bills on time.
Auto Loan Finance: Auto Loan or Auto Lease
Loan or lease? Many people don't take leasing into account as a means of auto finance. It is true that for most people an auto loan works better. However, don't automatically write the auto lease off. If you get new cars regularly, treat them well and don't drive too much, an auto lease may be your best car financing deal. When you lease a car, you are paying the difference between the showroom value of the car and what the dealer thinks it will be worth when you return it. You don't pay interest, often don't pay a down payment, and your monthly payments are lower. The main downside to this method of auto finance, is that you're not building up equity in the car.
Auto Loan Finance: New Car or Used Car
Should you finance a new car or a used car? There are pros and cons to financing either. Interest rates are lower for new auto financing, but new cars depreciate more rapidly. Obviously, a new car costs more than a used one, but there may be hidden costs when you finance a used car, like repairs or poor gas mileage. If you are very particular about what features your car has, you will have more options when you finance a new car, but if you aren't so picky, you are likely to save money overall if you finance a car that is a couple of years old, because new cars depreciate so rapidly initially.
Auto Loan Finance: Types of Auto Loans
Types of auto loans. There are many ways to finance an auto loan, including auto financing with the dealership from which you buy your car, auto financed through a bank or credit union, or taking out a home equity loan or line of credit to finance the auto loan. Stay away from auto financing with credit cards. The interest rates are prohibitive. If you own a home, auto loan finance using your home equity is something you'll want to look into. Rates for a home equity line of credit (home equity auto loan) are usually low. Credit unions or banks are usually the best way to go to finance a traditional auto loan, but don't automatically write off the dealership for auto loan financing. Although most often, car financing with them will just get you a higher interest rate, occasionally they will be your best deal for your auto loan finance.
Auto Loan Finance: Length of Auto Loan
The amount your auto loan finance will cost you depends on the length of your auto loan. It goes without saying that auto loan financing with a shorter loan will save you money on interest. Not only are you paying interest for a shorter amount of time, you can usually get a lower interest rate on a shorter auto loan. Auto loan financing with a longer loan will, however, get you lower monthly payments, and long-term it can be more expensive to pay so much on your car loan monthly that you have to pay for other needs by incurring credit card debt. Credit card finance charges can be twice as high as those on auto loans. Make sure your auto loan finance still leaves you enough for your needs.
Auto Loan Finance: Be Prepared for Your Auto Loan
Be prepared for your auto loan, and you'll save more. Don't be afraid to shop around for the best finance deal, and understand your auto loan contract before you sign it. Good luck with your auto loan finance!