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4 Steps to Getting an Auto Loan

 

Getting An Auto Loan

Skoda cars in a row

When you need a new or used vehicle and you can’t afford to buy one outright, you don’t need to feel alone. The truth is that most Americans are in the same exact position as you are. So, what can you
do?

Since getting an auto loan is not something you do every day, it is better to consider some facts before
you actually decide what financing is best. An auto loan works in a very similar way to a personal loan. The lender will lend you the money to buy the car and you will then need to pay the loan amount you borrowed plus interests. The payments are usually made on a monthly basis. However, there is
a main difference between automotive loans and personal loans. Let’s say that  you miss a couple of payments. Depending on the contract that you signed with the lender, he may repossess the car and sell it to pay off your loan debt. If there’s a deficit between what the car is worth versus what you owe, you will have to pay the remaining balance.

 

Where ever you get your auto loan from, whether that’s a credit union or dealership you

need to consider 4 different aspects:

 

#1: The Loan Cost:

Money Wallet

The loan cost includes two parts: the cost of the vehicle itself that you negotiate with the dealer

and the interest that you will need to pay over the life of the loan.

 

#2: The Interest Rate:

Interest rates

The interest rate is simply a rate that is charged to you for the money that you borrowed.

 

#3: The Down Payment:

Just like when you want to buy a house and you can’t afford one, you need to make a down payment. This is something that also occurs when you want to get an automotive loan. So, it is an upfront amount that the borrower pays in cash, at the time you buy the vehicle. While this isn’t required by law, in most cases, it is something required by the lender. Nevertheless, there are many zero down offers by dealerships, but you must have qualifying credit in order to take advantage of these offers.

 

#4: Terms & Conditions:

The terms and conditions of the auto loan include all the items that are related to the car and to the
loan itself. It should include the term of the loan, the loan payoff, the registration and insurance requirements, what happens if the vehicle is stolen or if you have an accident, among many others.

It is advisable that you read the terms and conditions very carefully before you sign it.

 

Recommendations

My recommendations include two valuable items, I believe you need when buying a car. An Extended Warranty and Gap Insurance. Both can be add to your auto loan for a few extra dollars a month.

 

Extended Warranty: First of all, let me dispel all the critics of an extended warranty. The people that tell you not to buy an extended warranty are only the people whom have never needed one. Prime example, my 2012 Mercedes GLE 450 air suspension just went out. I had an extended warranty. Unfortunately, my warranty expired a month earlier. My problem was I didn’t extend it long enough. If it was enforced it would have cost me zero because of my zero deductible. The two quotes I received for the repairs, both were over $2500 dollars. Because of my 20 plus years of being in the car industry, I was able to have it done for $1200 dollars. I was lucky this wasn’t a transmission or engine because these cost many thousands of dollars. I’m speaking specifically of purchasing a used or pre-owned vehicle. Most New vehicles will have a long term warranty. I advise you if you plan on keeping the car longer than the warranty. Purchase an extended warranty before the new car warranty expires.

 

 

Gap Insurance: Gap insurance is another item I recommend. Once again, the only people who tell you not to get it is the people whom never been in a situation with an accident. Here’s how Gap Insurance works. Example, you have a car accident and you owe more than your car is worth. Without Gap Insurance, you would have to pay the difference between what your car is worth versus the payoff. With Gap Insurance your full amount is paid. Gap covers the deficit that is owed. You have two ways to purchase Gap Insurance. You can purchase it from the dealership at the time you purchase your vehicle and include it in your loan for a few dollars a month. Or you can purchase it from your insurance company.

 

Conclusion

Now that you understand a bit more about automotive loans, you need to know that your credit score matters. However, you will be glad to know that there are dealerships that accept bad credit. So, you should make sure that you search for the best bad credit loan. My one suggestion would be try to pay down your credit cards before going to a dealership. This way your fico credit scores with be at their highest even with bad credit, which will allow you to get a better interest rate and have a better chance of being approved for an auto loan.

Make sure that you compare the lowest auto refinance rates for your credit. Nevertheless, be sure to read every condition that applies.

 

Thanks and good luck financing an auto loan. Please email me with any question at tony@makingcentsofcredit.com. Also, subscribe to my email list for more great free content.

 

Tony

 

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