This post may contain affiliate links. Which means we may earn a commission if you decide to make a purchase through our links. Please read our disclosure for more info.
In the 21st century, cars have become a necessity. If you live outside the city where public transport isn’t available, cars are there to transfer you from point “A” to point “B”. It is a well-known fact that millions of people in the world commute every day to their workplaces. In the US alone, where suburbs surround the cities, the only way to get to your job is by car. If you don’t own a car and you’re planning to purchase one, car loans can help you along the way.
Car Loan Yields a Long Term Commitment
The tricky part is getting a car loan that will benefit you the most. If you don’t do it the right way, you may end up spending loads of money which isn’t a good thing to begin with. There are many instances where youngsters who are eager to buy a car make rush decisions or listen to their friends for advice. Sometimes you can learn something useful, but other times if the advice is terrible, it will lead to stupid decisions. Click on this link https://www.investopedia.com/articles/personal-finance/070915/personal-loans-vs-car-loans-how-they-differ.asp if you want to find out more about some pros and cons of car loans.
The process of buying a car and taking a loan can be divided into three parts. It’s imperative to learn how these parts work for you to make a successful purchase. The first part is the amount of borrowed money or the car loan itself; the second part is the interest rate, and the third is the length of the loan. Whether you can afford or not a certain amount for a monthly payment is determined by these three parts.
How Does the Process Work?
The car loan itself, which is the borrowed money, includes the price of the car you want to buy and some additional taxes or fees along the way. So, the car loan is basically the total amount of money you should borrow from the bank to make a successful purchase. If you want to get the best deal, doing some research before buying a car is necessary.
An extended warranty (or vehicle service contract) is an optional plan you can decide to buy. This plan can potentially help you pay for certain repair costs while using the car. It’s best if you don’t pay a full price for carpet cleaning or extended warranties since these prices are generally negotiable.
For what concerns the interest rate, it says how much money you should pay back to the bank in a given period in order to have the car loan, to begin with. You need to have excellent credit, or you can opt for a cosigner with an excellent credit if you want to get the best interest rates. Click here for more tips and tricks about smartly financing a car.
If you decide to have a cosigner, it’s essential not to get behind on your monthly payments because this can hurt the credit score. A cosigner is basically a person or an entity who will vouch for your payments. It means that if you miss a monthly payment, they will swoop in to save the day. But, if your credit history is not so good, the lenders can show some hesitation on whether they should help you.
A car down payment is another important factor. This is the money you pay upfront for your vehicle and should be around 10 to 20% if you want to get reasonable interest rates. The bigger is the down payment, the lower will be the interest you pay. Lower monthly payments will protect you from paying more than the actual price of your car. Even though 20% may seem a lot at first glance, some sacrifices should be made along the way.
It would be best if you avoid at any cost going “upside-down” or “underwater” on your car loan since you will end up paying a ton of interest. This means that you end up owning more than the actual price of the car. Generally, the best loan interest rates that you can obtain are between 3 and 5%. So, if you are financing $30,000, you will be giving between 900 and $1500 a year in interest. If, in any case, you are given an interest rate higher than 5%, you should probably work on your credit score.
It would help if you decided whether you will stick with the banks and credit unions or even opt for a company that you find online and suits you the most. Sometimes going to a local bank might seem like the most straightforward decision, but it’s not always the smart one. You should research thoroughly and go with whoever will save you the most. If you live in one country, but you find a company with good interest rates in another country, online shopping can turn out to be a good decision. You can check out Buttonwood Finance for more information on car loans.
And last but not least, a crucial role plays the length of the loan as well. It is the amount of time you will be making your monthly payments until you ultimately pay off the car loan. Of course, the longer the loan’s length, the smaller will be your monthly payments. But this can turn out to be tricky because you will end up paying more in interest rates. Be aware of the dealers or the banks that will offer an extension of the payoff period, and trick you that you’re getting a good deal.
The ideal length of the loan should be around 2 to 5 years. If you continue beyond that period, the interest rates will increase gradually, and you will waste so much money. Even if you are a customer with an excellent credit score, the rates can up about several points for each year you extend past the maximum suggested loan period of 5 years.