Auto Loan Calculator
About Auto Loans
Most people turn to auto loans during a vehicle purchase. They work as any generic, secured loan from a financial institution does with a typical term of 36, 60, 72, or 84 months in the U.S. Each month, repayment of principal and interest must be made from borrowers to auto loan lenders. Money borrowed from a lender that isn't paid back can result in the car being legally repossessed.
Dealership Financing vs. Direct Lending
Generally, there are two main financing options available: direct lending or dealership financing. Direct lending comes from a bank, credit union, or other financial institution. Dealership financing is initiated and completed through the dealership itself. Getting pre-approved for direct lending provides more leverage for buyers to walk into a car dealer with financing already arranged, placing stress on the dealer to compete with a better rate.
Auto Loan Strategies
The most important strategy to get a great auto loan is to be well-prepared. This means determining what is affordable before heading to a dealership. Knowing what kind of vehicle is desired will make it easier to research and find the best deals to suit your individual needs. Credit, and to a lesser extent, income, generally determines approval for auto loans. Borrowers with excellent credit will most likely receive lower interest rates, which will result in paying less for a car overall.
Frequently Asked Questions (FAQ)
1. What fees are associated with a car purchase?
Besides the vehicle price, common costs include sales tax, document fees (for title and registration), advertising fees, and destination fees. It is wise to demand justification for any mysterious special charges a dealer adds.
2. Should I choose cash back or low-interest financing?
Auto manufacturers may offer either a cash vehicle rebate or a lower interest rate. A cash rebate instantly reduces the purchasing price, but a lower rate can potentially result in greater savings in interest payments over time. The better choice depends on the loan term and your financial situation.
3. What is a trade-in?
A trade-in is a process of selling your current vehicle to the dealership in exchange for credit toward purchasing another vehicle. Note that some states offer a sales tax reduction based on the trade-in value, while others do not.