1.Get Your Money in Order
First things first - how good is your credit score? You also need to visit your financier and get a breakdown of the amount you qualify for and how much interest you're signing up for with particular loan types.
Some credit unions may play down the interest to get you to borrow from them only to rack up debt later or lose your car. Also, the car type matters. For example, a Honda CR-VLX will cost you less than a Subaru Outback 2.51. Here are some of the loans you can get before you shop for a car.
Most car loans fall under the secured category and guaranteed by a lien. The lien in this case is the car. Your financier has a right to repo your car if you fall behind on payments. Secured loans are less risky for financiers and therefore have lower interest rates.
These types of loans are not secured by the underlying asset. In other words, the lender has no right to repo your car if you fall behind on payments. This presents a higher risk to the lender which automatically translates to higher interest rates. Your credit score will determine how much interest is tied to your loan. The better your credit score, the better for you.
Simple Interest Loans
Simple interest loans work by periodically accruing interest on your outstanding balance -typically daily. You're required to offset the loan by paying a certain amount every month. These loans are more flexible. You can pay more than the required amount each month and settle the loan before the deadline.
2. Compare and Contrast Different Lenders
How much car can you afford? Know before you go. After window shopping for a used car, it's time to compare different lenders before you settle on a particular financier. Relying on ads is too risky –no lender would advertise their flaws. Plus, different lenders offer different rates. These comparisons help you to determine which interest rates are within your budget.
People assume that buying a used car should cost less and attract lower interest rates. The truth is the exact opposite. Used car financing rates are generally higher than new car financing rates. This is due to lenders' desire for borrowers to purchase new vehicles instead of second-hand vehicles. Why? It's pretty straightforward. If you fall behind on payments or default on it altogether, your lender has to repo the car. A new car has a higher resale value than a second-hand car.
If you can, avoid longer payment periods. The interest rates may be lower but you pay more eventually.
Buying a car is a big investment, making shopping for a car stressful. Here are some tips to deal with a car dealership and finances.
3. Get Preapproved Before You Shop for a Car
So, thinking about starting your car financing at the dealership? That's a bad idea as you can't be sure that the loan you're getting is the best deal you can get. Getting a preapproved car loan, from traditional banks and credit unions, helps you to win the trust of your dealership and gives you more room to bargain along with other advantages including.
- Toeing the line with your budget. A smooth-talking salesperson at the car dealership may get you to spend more than you intend, especially if you're buying a used car. A preapproved loan tells you exactly how much you have and the accruing interest.
- Avoiding Dealer Markups. Some dealers hike the interest rates just because they can and you have no funding from other sources. Just a 0.5% increase could mean paying hundreds of dollars more on your loan.
- Saving Time. A preapproved loan helps you minimize the time it takes to fill out paperwork. Plus, you can ward off tire warranties that would cause you to go over your budget.
For instance, if your income has increased, refinancing your used auto loan so you have a higher monthly payment and a shorter repayment period might work for you. Conversely, if your income has taken a dip, refinancing your car loan so you can have a lower monthly payment might be best.
Can I Get GAP Protection?
You can get GAP protection if your loan is more than the value of a 1-year-old version of the model you want. GAP is a great idea for a recent model -1 to 2 years old. If you're buying a used car, institutions like PrimeWay offer new car rates on recent year models of used vehicles (1-2 years).
If your car gets totaled, your insurance pays for the value of your car and not the loan amount. For instance, if you owe $15,000 but your car is worth $10,000 you still owe your lender 5K. GAP insurance covers this difference when you have a collision and comprehensive insurance on your car policy.
Your Finances Made Easier When You Shop for a Car
At PrimeWay, we're more than a financial institution. We're here for the long haul serving you through your financial highs and lows. Join the PrimeWay family today.