There are more options now than ever for getting an auto loan. However, not all car loans are created equal.
When going through the process of applying for an auto loan and reviewing your options, you want to be sure that you find the best loan available to you. In doing so, there are certain factors you want to consider. Here are five things to look for when getting an auto loan:
You want to score the lowest interest rate possible on an auto loan. Low-interest rates paired with other good loan terms will provide you with a better quality auto loan.
Your interest rate will vary based on the type of lender you select, the state of the economy, the vehicle you choose, and your financial status.
To score a low interest one, you want to compare interest rates of various lenders and ensure that your credit profile is prepared to take on additional debt.
You can do this by boosting your credit score by reducing your debt to income ratio, paying off debt, making payments on time, etc.
New vs. Used
The next factor to consider is whether you will purchase a new or used vehicle.
New vehicles typically have a higher sticker price, but the interest rate will be lower because lenders are taking on less risk by financing a newer car. This is because new cars are usually under warranty and less likely to break down while still being financed.
Used vehicles tend to be less expensive, but the interest rates can be higher, mainly depending on how old it is because the lender is taking on more risk when financing the car. This is because some used vehicles are no longer under a manufacturer’s warranty, have a limited additional warranty, or are more likely to have maintenance issues due to their age.
Auto Loan Term
You also want to consider the auto loan term. Your term is how long you agree to pay off your loan. This can range from 24 months to 84 months, with 60 and 72 being more common.
When you choose a longer term, you’ll pay less each month. However, your interest rate and the amount you pay for your vehicle over the length of your loan will typically be higher.
On the other hand, when you choose a shorter-term loan, you’ll pay more each month. However, your interest rate and the amount you pay for your vehicle over the length of your loan will typically be lower.
In making this decision, you want to consider the monthly payment that best fits your budget, along with how you can pay the least amount for your car over the length of your loan. So you want to compare your offers when deciding your loan term.
Type of Auto Loan Lender
Another major factor to consider is the type of lender you get your auto loan from. There are five primary options, and each has its advantages and disadvantages, which you should explore before making your decision.
You’re likely familiar with a bank. It’s a for-profit financial institution designed to provide you with numerous financial services such as checking and savings accounts, home mortgages, auto loans, and more.
Advantages: Have advanced technology making the auto loan process easy.
Disadvantages: Have stricter limits on the type of vehicle you can finance and the financial requirements of those they lend money to.
These are similar to banks, but credit unions are nonprofit organizations. To enjoy credit union services, you have to become a member, and your membership grants you part ownership in the financial cooperative.
Advantages: Credit unions strive to offer their members lower interest rates on auto loans. Also, they are known for providing higher levels of customer service and greater flexibility with applications. They are also more likely to offer loans for private purchases and older vehicles or those with more miles.
Disadvantages: Credit unions are usually smaller with fewer branches, so you might not be able to have the in-person experience depending on where you live.
Obtaining financing through a dealership is common because it’s where you purchase your car, so you can handle both requirements at one time.
Advantages: There’s convenience in purchasing your vehicle and getting your financing at the same time in the same place. You don’t have to take multiple hard hits to your credit since you will submit one application, and the dealer will send your application to various lenders in their network at once.
Disadvantages: Dealerships want to make a profit on the financing, so the interest rates are often increased so the dealer can make a profit.
Buy Here, Pay Here Dealership
Some dealerships also offer an auto loan using private money, not the use of banks and credit unions. This option is typically reserved for those who can’t qualify for financing elsewhere.
Advantages: It gives those without good credit the opportunity to purchase a vehicle.
Disadvantages: The interest rates are some of the highest you’ll find, and unless it’s an emergency, it’s often better for you to hold off on getting a loan until you can qualify elsewhere.
Various companies operate 100% online to provide you with an auto loan. These are known as online lenders.
Advantages: They offer the convenience of a 100% online process and typically fast approval times.
Disadvantages: They sometimes lack the reliable customer service component you’re looking for, and you can’t always confirm their validity and customer experience.
Other Auto Loan Options
It‘s a good idea to get a pre-approval and compare your options before committing to an auto loan. When comparing your options, consider the other factors listed above, such as the type of lender, your loan term, and interest rate.
The best way to weigh your options is to apply with at least three lenders in 14 days, so you only get one hard hit on your credit. See the terms that each has to offer and which company can provide you with the best auto loan experience for your new or used car.
After comparing your options, you can choose the loan that makes the most sense for your finances.
When you’re ready to start researching your options, be sure to check out Belco Community Credit Union auto and motorcycle loans.