Cars are an integral part of our lives. While public transit can take care of some of our needs if necessary, cars provide an immense convenience and the freedom to roam the entire country! Getting a car isn’t always easy.
Finding the right car in the first place can be difficult. Finding the right car loan to allow you to make the purchase is often just as difficult.
You can get car loans from a lot of different places these days, and it’s a good idea to know what you’re doing when you make the offer. Car loans are like any other loan in that you should never take on more than you are capable of paying back comfortably.
Car Loan Terminology
Sometimes, the terminology of your loan can be confusing. Here’s some help with some of the terms you might not be as familiar with:
- Balloon Payment - This refers to a large payment made at the start or end (or both) of a car loan to help reduce the monthly payment.
- Bill of Sale - The final document and paperwork that shows the dealership has sold the car to you.
- Buydown - This is an option to reduce the interest rate on the loan. This requires a specific payment to reduce interest rates.
- PTI - This is the payment to income ratio. Many lenders have a maximum PTI they will allow since anything higher would indicate a high chance of not repaying.
How to Apply for a Car Loan
When you want to apply for a car loan, the best way is to prepare for it ahead of time. Determine your credit score and how much you’re capable of paying per month. This will allow you to use online calculators to determine what your maximum spend limit is on the car itself.
After that you want to work on pre-approval for a loan. Pre-approval means that you don’t have to rush to find the money right when the purchase is made. Pre-approval is also not a commitment. You can choose to proceed with the loan or not. You can also be pre-approved at more than one source. Your credit score can take a hit if there are too many queries on it. However it lumps all checks into a two week period. This means you can get pre-approved for multiple loans during one time period and not take a hit.
Finally pick your car, finish the paperwork and enjoy driving it off the lot!
Car Loan Providers
The most common source of a car loan is from the dealerships themselves. They offer various levels of financing that can sometimes have excellent interest rates and sometimes only moderate interest rates. To qualify for these, you will generally need to have pretty good credit.
The next choice to provide a car loan is from banks. Banks will also run credit checks and assess you an interest rate based on your credit rating for the loan. Banks tend towards higher interest rates than the dealerships. This is because the dealership financing not making a lot of money is offset by the profit from selling a car.
After banks, there are a lot of options online for getting a car loan. There are companies like CarsDirect and MyAutoLoan which can provide you with loans. While those are some of the better ones, there are also a lot of online loan providers who are very predatory. These often offer loans to anyone regardless of credit. However the loan will have outrageous interest rates and a single delayed or missed payment could result in huge penalties and immediate seizure of your car!