Shopping For An Auto Loan
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Cash
The pros for paying cash for a car are obvious: you avoid interest charges, you don't have to worry about financing, and you make get a better deal on the car. However, most people don't consider the cons: depleting your savings and the interest you would have earned investing the money. But you need to take into account that the interest you earn is taxable and may not add up to be more than the interest you would pay for a loan. If you can afford it, paying cash is the best way to go. For the rest of us, there's financing. Note: The cost of financing a vehicle increases greatly as the term of the loan increases due to the interest. Financing
Before you even begin to shop for a car, you need to shop for your financing. Before you shop for financing order a credit report and clear up any outstanding debts or errors. Note: A person with bad credit will have to pay higher interest rates than one with good credit. | Where to shop: | | Finance Companies | | Dealers | | Banks | Credit Unions | | Home Equity Loans | Online | The best advice: know how much you want to borrow and shop around. The primary concern when shopping for any loan is the annual percentage rate (APR). Be aware of any hidden fees or restrictions on your loan. On occasion, some banks and credit unions may give a lower APR for automatic drafts from your checking account. Generally, banks offer a better rate than dealers, credit unions (members only) better than banks, and online is comparable to credit unions. Check the advertisements, be on the lookout for special promotions, sometimes a dealer may surprise you and have the best offer. Home Equity loans allow you tax savings and may have a lower interest rate than an automobile loan. However, you are risking your home if you should default on this loan. Internet loans offer you the freedom of shopping from the comfort of your home, low rates, no processing fee, and you may even be able to finance with no money down. Note: The APR is usually lower when financing a new car versus a used car. Financing Terms: term length After you found the best interest rate you have to decide the term length of the loan. The longer you hold the loan the more important it becomes to find the lowest rate available. Increasing the term length of the loan has the immediate payoff of a lower monthly payment, but in the long run the total interest paid is much higher. Amount Down: The more money you put down results in the less interest you pay as the size of the loan decreases. Don't over-extend yourself though, remember the costs such as insurance, registration, and other fees associated with getting the car on the road. Rebates vs. Dealer Financing: Rebates are good no matter how you look at them. If you apply the money toward the loan, you will lower the amount owed, the amount of interest paid, and may be able to afford a shorter term length. If you chose to invest the rebate, you have the interest earned. Dealer rebates may well save you money over dealer financing, to determine the better option you need to analyze the total cost of each option over the length of the finance term.
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Source: CarSmart
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