You are looking into buying a new car and you’ve saved up enough to make a down payment. But you find that you still need a loan to be able to buy that car. What’s the next step from here? Well most people will tell you to shop around for loans. This is of course the most practical thing to do as you get around to comparing prices and realize you don’t have the whole amount available to buy your car. While it seems like a simple task, the most important thing to look out for when shopping is the auto loan interest rates because they can greatly affect how much you’re actually paying for the vehicle in the long run.
How do auto loans work? To begin with, auto financing loans are like any other loan and impose certain obligations. The bank or credit union loans you the money to buy the car when you don’t have the entire amount needed to buy the car. These institutions then let you pay them back monthly until you’ve finished reimbursement. Technically speaking, they own the car even if you’re the one driving it around and parking it in the garage at home for as long as repayment of the loan in full hasn’t been completed.
Sounds pretty simple, but there’s a catch. Auto loan interest rates are part of the deal so as to assure the lender that you’ll be forced to meet deadlines and pay in the right amounts. Interest is an added expense that you pay along with your monthly repayments of principle. The terms you get are affected by your credit history and loan term. The cleaner and stronger your credit history is, the lower your interest will be.
The same goes for the loan term – the shorter the term is, the more likely that your auto loan interest rates will be lowered too. If you are on a tight budget though, this may not seem like the best option. With a longer term, if you’re offered low down payments as well as low monthly charges, do expect that your interest rates will be slightly higher.
One thing to keep in mind when looking around for the perfect loan is that no matter what your situation is, companies will try to make a profit from you. Try learning how much you qualify to borrow and never mention during any pre-qualification interview or questionnaire how much you intend to pay monthly. They can easily compute interest rates according to what gives them the most benefit while making it appear like you’re getting a bargain, which you’re not.
Avoid no-money-down or unbelievably low down payments since interest will surely make up for it. Bear in mind that auto loan interest rates can make you end up paying much more than your car’s actual worth. Having the right mindset when it comes to your budget and being realistic about your ability to repay will enable to get you the best possible deal out there.