Auto Loans Guide For New Car Buyers

Most new car purchases are financed with auto loans, and many used cars are also bought using auto loans. After a home loan, buying a car is possible the next biggest expense you will be adding to the household, so there is some details you need to know before going to the local car lot, especially for excited new car buyers. When you are ready to buy a car, you need to decide how much money you can afford to put for down payment, how much you want to finance, how to compare car loans, what rebates to ask for etc.

A lesser used approach is to use a home equity loan to pay for a new car. This is only applicable for homeowners with sufficient equity in their homes. The risk here is that you can lose your home if you cannot pay back the lender. The advantage of buying a car with home equity loans is the interest rate is cheaper and may be tax deductible as well. Note that this means you are borrowing a lump sum against your home equity and using it to pay for your car in full, so no financing is needed. This is several times cheaper compared to high risk loans with no collateral.

Many people are choosing to buy used cars because they are cheaper, especially good condition cars under 2 years. However, this is slightly offset by the fact that interest rates on auto loans for new cars are cheaper than financing for used cars. Furthermore, you can finance a new car loan up to 60 months while old cars cannot be financed over longer terms. This is because second hand cars carry higher risks of failure and depreciation, and may be worth a lot less when the lender need to repossess the vehicle to recover their loan money.

This actually makes a new car cheaper than a used car in many instances. The interest can change and will not be locked in before you buy your car. The down payment details can also change dramatically if the value of the car you are purchasing decreases or increases.

Some lenders will add a prepayment fee if you wanted to settle the loan balance earlier than scheduled – that means you may not be able to save money on interest fees. You need to find out if there is such a clause before signing on the loan contract. This is used by some lenders to safeguard against car buyers who try to refinance their auto loans at cheaper rates. However, they may offer a rebate if you refinance your existing car loan with them instead.

There is a common trick used to ensnare new car buyers who accept in-house car loans at dealerships. They will usually sell you the car first and say your financing will take a few days to be processed and approved. After you have drove home your new car, they will call up and say your application is denied due to poor credit. Now you have no choice but to accept a more expensive lender who is willing to finance you at higher APR. Do not buy the car until your financing is secured.

Some lenders will try to sell you credit insurance on their auto loans, saying that it is a state requirement. Actually, credit insurance is not mandated by federal law and your car insurance policy may already cover credit insurance. When some auto loan lenders require credit insurance and some do not, you need to calculate the overall cost and compare carefully.

Be sure to get quotes from online auto loan lenders, since they offer very competitive rates even for new car buyers with no credit. You can get approved up to a certain loan amount within minutes, and you can buy any car valued under this loan limit. This is one of the best way to finance a new car purchase and you can avoid financing scams at dishonest buy here pay here auto dealers. Do you know that many in-house financing at car lots are nothing but middleman for banks and other financing companies? That means you have to pay additional commission on top of the actual auto loan rates from their partnering lenders. It is like taking a $50000 long term signature loan for bad credit, except you use it to buy a car. Pretty silly.

You should compare at least 3 quotes from different auto loan lenders and examine the loan conditions and rates to determine the cheapest deal. For example, when a lender is giving zero percent car financing deals, it may not be the cheapest loan so check for other fees. The lender may require you to make larger monthly payments to qualify for a 0 APR car loan for 3 years, a bigger down payment, prepayment penalties etc. You may end up paying more on a zero APR auto loan due to hidden fees and stricter terms. It is not easy to evaluate and check which car loan is the cheapest, because lenders can sneak in fees in various places knowing that new car buyers are too concerned with just the loan APR.

Unless you are able to invest your money at high returns, it is better to make a bigger down payment using excess savings. Consumer car loan rates are not cheap, especially for new car buyers with bad credit or no credit. Buying a car with more money down means your loan is smaller, and this is a great way to bargain with lenders for a lower interest rate. A 25% down payment also helps avoid you being upside down on your auto loan due to car value depreciation. For example, if you finance a car purchase for 5 years and it depreciates by 40%, you will owe more than what your car is worth now. Alternatively, you can reduce the length of your car loan but this requires a bigger monthly payment, which can be tough for young car buyers with limited income.

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