Thursday, September 13, 2012

Getting an Auto Loan

After you've done your research to decide what kind of car you want to buy, you're going to need to do some additional research to figure out how best to pay for it. Before you ever step foot onto the dealer's lot, you should do some searching to find the best and most appropriate loan for your situation.

Regardless of whether you're buying a new car or a used car, there are some important things you need to consider.

Down Payment How much can you afford to pay up front in the form of a down payment? The bigger your down payment, the smaller the loan you'll need to take out to pay for the car and therefore potentially, the smaller your monthly payment will be.

A larger down payment might also help you avoid being "upside down" on your loan, meaning you owe more on the car than it's worth. It's normal for this to happen at first, because a car's value will depreciate, but it can be a problem if you remain upside down for a long time.

Credit History The interest rate you'll get on your loan is going to depend greatly on your credit history. The stronger your credit history, the better the rate you'll get. You might want to check your credit report before you even apply for financing and, if your credit is less than stellar, think about whether or not you'll want to try and build it up before you attempt to get an auto loan.

Interest Rate Your interest rate will also depend on where the loan comes from. Do a little shopping around to see what type of lender might offer you the best rate. If you finance your car through the dealer, make sure you know who the lender is they're working with and that all the details are taken care of before you drive the car off the lot.

And watch out for special offers, like 0% interest; they may sound great in general, but when you look at the terms, you might find that you'll end up with a much larger monthly payment than you would have had with a low-interest loan. This is because many of these 0% interest loans are only offered with shorter repayment terms. The key is to look at all the options and find the one that is right for you and your financial situation.

Loan Period You'll also need to consider the length of time you want to carry the loan. There are lots of repayment options out there. Extending your loan out over 5 or 6 years may lower your monthly payment, but it will also increase the amount of interest you are paying and, therefore, the total amount you end up paying for the car. As you're thinking about the car and loan you can afford, carefully consider how long you are comfortable in taking to pay off your car.

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