Auto Loans — Chances are when you go to buy a car, you’re going to need an auto loan. This is a pretty standard thing nowadays; most people don’t just sit on an extra 20 grand or so. Because it’s something that is so common, you’re going to want to research auto loans so you have an idea of what is going on.
There is some new vocabulary you will need to familiarize yourself with; it’s like visiting a foreign country if you’ve never gotten an auto loan before. So, here is your handy-dandy dictionary you can use to translate some of the stuff they are talking about.
This is the Annual Percentage Rate, or the amount of interest you will pay in one year. For example, if you have a $10,000 loan, and a 5% APR, that translates to $500 interest annually. That brings up a good question, what is a good or decent APR that you can expect to pay? Well, in this type of writing, I can’t tell you that, because they vary from week to week. To find this out you can go to a respectable website like www.bankrate.com or to your bank or credit union and inquire what the going rate is on a typical auto loan. This depends heavily on your credit, the model year of the car, and your down payment.
The term is the time period of your loan, usually a minimum of three years, and can go anywhere from 5 to 6 or even 8 years. The longer the term, the more interest you will end up paying, but on the flip side, the shorter the term, the bigger the payment you will have. Your typical term is 4 or 5 years.
Depending on your credit, you will get a credit score. The dealer or bank will run your credit to see how your credit history is. This takes into consideration how you make your payments on other loans, whether on time or late, and also factors in how much money you have borrowed already and not yet paid back. So if you have a lot of loans already, you are more risky than someone who doesn’t. First time buyers are generally the riskiest of the borrowers, hence they usually don’t get rates as good.
Okay, so now that you are a bit more familiar with the auto loan lingo, now what do you do? Well, I can tell you that it helps tons if you get preapproved from your bank or credit union before you go to the dealer. Preapproved is getting the loan secured before hand so you know exactly how much you qualify for, what the rate is and what kind of down payment you will need. If you just go to your financial institution and talk to a loan officer, you can tell them that you are car shopping and would like to get preapproved. Then you can use this to compare with what the dealer is telling you and take the better offer.