It’s no surprise if you’re on the hunt for an auto loan. As the supply chain has tightened over the past several years, the average price of a new car has reached $47,000. It’s not feasible for many people to buy a car for cash.
Luckily, there are many places outside of a dealership to get a loan for a car. But you must be careful and avoid common traps if you want the best loan.
You must choose car loan companies carefully to avoid paying more than necessary. Use the tips below when you look at your options for loan companies to find the best choice for your needs.
Check the Interest Rate
Your interest rate is one of the most important factors to consider when comparing loan costs. Your interest rates tell you how much you’ll pay to get a loan. It’s the extra money you pay every month on top of the money that goes toward your principal.
Make sure to get it in clear terms what your real rate will be. Once you learn your rate and determine how much cash you’ll put down on your car, you’ll be able to figure out how much you’ll pay towards your loan principal and how much will go to interest.
Get the best rates for auto loans as possible to avoid paying more money than necessary.
Consider Your Payment Length
Your payment length can significantly affect how much you pay every month. Some people believe that getting as long of a loan as possible is the best choice. But that isn’t always the case.
Some loan servicers may be able to work with you on your interest rate if you take shorter loan terms. Yes, you’ll pay more cash every month on your payment. However, your principal payment will be higher than the interest amount.
Additionally, you’ll be able to save money if your loan provider offers you better rates. See what your options are for loan length to see if a shorter term makes sense.
Learn About Loan Types
There is more than one type of loan to purchase. Because of that, it pays to learn your options to see which one is right for you.
The first primary type is a variable rate loan. Your lender can change your interest rate with this type of loan. They will have a window where they can’t make changes, but your interest rate can go up or down after that.
Your other type of loan is a fixed-rate loan. In most cases, you’ll receive this type of loan. You’ll know how much your interest rate will be and won’t need to worry about future changes.
Understand Prepayment Penalties
Do you plan to pay extra on your loan every month to reduce your total interest paid? If so, you’re doing things the smart way. But that doesn’t mean lenders won’t try to get money out of you in other ways.
Some lending companies have prepayment penalties in their contracts. You may owe more money if you pay off your loan’s principal before the end of your loan’s term.
Try to avoid these types of loans if you can. You shouldn’t have any problem finding a loan from another company that doesn’t have strings attached.
Get Multiple Quotes
The last thing you should do when comparing loan costs is stick with the terms your car dealership offers. Sure, going to them for a loan will make things easier. But that isn’t your only option for a car loan.
Get as many quotes as possible before you head to the dealership lot. You want to explore your options and see what everyone else offers. Once you find someone that offers a great deal, get a pre-approval letter before you start shopping for your new car.
Take that pre-approval letter to the car dealership when you’re ready to buy. You may be able to get the dealer to compete for the loan account and end up with an even better deal.
Read the Fine Print
Reading the fine print is critical when you get a loan. The total amount you pay may not be what you expect when you learn about your monthly payment and interest rate. In some cases, you may get hit with extra fees.
Make sure you learn about those fees before you sign a loan contract. Ask your lender about them before you commit to working with them. They’re required by law to tell you about closing fees and other costs.
Check for Reviews
Getting reviews from loan providers is a great way to look for a company to work with. Yes, you can work with big lenders and get a loan there. But they aren’t your only option when looking for auto loans.
Check online to see if you can find comparison websites for loans. These websites will point you to other auto lenders that will finance your new car.
Once you get a list of loan providers, check for reviews from other customers. This information will help you narrow your choices and pick a lender that will offer excellent service.
Take Care When You Choose Car Loan Companies
You’re making a big decision when you file your car loan application. You’re putting yourself in debt for several years, so you want to avoid paying more than necessary.
You must do everything possible to find the best loan when purchasing a new car. Remember the guide above when you choose car loan companies to look through your loan options and find a fair loan servicer.
Do you want more tips that will help you when making other big decisions? Check out the blog to learn more.