When it comes to financing your dream car, many people start to panic. Loan applications, credit scores, and the possibility of denial weigh heavy on their minds, but with these tips, getting the financing you need to drive away in the car you’ve always wanted is a breeze!
Car Loan Basics
The way a car loan works is that you borrow money from a lending source and pay it back over an allotted amount of time. In almost all cases, a certain percent of interest will be added to your loan. For example, if you take out a car loan for $20,000 with an interest rate of 5 percent, you will end up paying $21,000 back to the lender over the life of the loan. On top of the purchase price of the car, it is important to take into account taxes and fees from the auto dealer, and the general cost of owning a car (i.e., insurance, gas, maintenance, etc.). Car loans are approved for millions of people every day and are among the most common ways of purchasing a new or used car.
Terms of the Basic Car Loan
Car loans come in different amounts depending on your need, and every loan comes with its own set of terms. These terms involve the interest rate and the length of time you have to pay back your loan. A common mistake many people make is that if they get a five-year loan, they assume that as long as they have it paid off in five years, all is well. This is not the case. Most loans are to be paid in monthly installments, and it is very important to pay attention to your loan terms so as to not fall into any type of loan debt.
Credit Scores and Auto Financing
Your credit score will directly reflect on the amount of interest you pay on your car loan. Unfortunately, in most cases, the lower your credit score, the higher the interest you will pay over the life of your loan. In this aspect, knowledge is most certainly power. Knowing your credit score is important because it will help you be prepared for whatever interest rate might be coming your way.
One Application Is Never Enough
When it comes to auto financing, the motto “Try, try again” will become your best friend. When applying for car loans, it is a good idea to apply to more than one different lender at the same time. Banks, credit unions, and other lenders all offer different types of financing, and just because you apply does not mean you have to take any specific offer. Filling out numerous applications will increase your chances of finding the perfect financing for your personal situation, but it is imperative to fill these forms out honestly. When applying at multiple lenders at the same time, it is a good idea to do so at the same time so your credit score will not be negatively affected.