What To Consider When Getting A Vehicle Loan

Posted on

Are you currently shopping around for a new or used vehicle, and need to secure financing to pay for it? If so, you'll need to reach out to a lender in your area that specializes in auto loans. Here are some things that you should consider when shopping for a loan.

The Interest Rate

The one factor that is going to have the biggest influence on your monthly payment is the interest rate. People that have a higher credit score tend to get a lower interest rate because their credit history shows that they are more likely to pay back the loan and be less of a risk to the lender. Meanwhile, a poor credit score has the opposite effect, which will cause the lender to offer a higher interest rate because they feel like you are a high-risk borrower and may not pay back the loan. 

You should know that the interest rate for an auto loan has an amortization schedule, which is much like how interest is calculated for a mortgage. While the presented interest rate is what you pay when averaged out over the course of the entire loan, be aware that each monthly payment towards the start of the loan has you paying more in interest than payments at the end of the loan. 

The Loan Term

The loan's term refers to how long the loan is in months. A longer loan term results in a lower monthly payment but can result in paying more in interest over time. That's why it's important to look at the total cost of the loan when you consider different interest rates because a long loan with a lower interest rate can be misleading. Make sure that you are not just comfortable with the monthly payment, but the total cost of buying the car with interest.

The Down Payment

Lenders have different requirements for down payments, so it's important that you know what you can afford. You may see an offer for no down payment, while others require a certain percentage of the vehicle's price. Keep in mind that a down payment reduces how much money you borrow, which is what you are paying interest on. It may be worth providing a down payment even if the lender says you do not need to provide one.

Reach out to an auto loan lender in your area for more information on financing your car purchase.