Auto Loan Considerations
By John Campbell
If you find yourself shopping around for
an auto loan there is much to consider before
you ever sign the dotted line.
The first thing to consider is if you want
to pay a down payment on the vehicle. Many
lenders today don't require a down payment
but it is still a good idea to pay as much
as possible, initally. The more you pay for
a down payment, the lower your payments may
be on the loan.
If you have a used vehicle you can
trade-in, the money you get for the trade-in
can be added into the down payment. Don't
expect to make a lot of money on your
trade-in unless your car is in absolutely
perfect condition. Any cosmetic flaws
or mechanical work needing to be done
on your old vehicle can significantly
lower its potential trade-in value.
The next thing to consider is what your
interest rate will be on the loan. If
your credit is good you may qualify for
a loan within the 4-8 percent range. If
you have subprime credit the interest
rate on your loan could jump higher than
20 percent. The percentage rate you pay
on the loan will play an important factor
in how much your monthly loan payment
will be.
You also have to consider how long you
would like the loan term to last. Many
auto loans are usually available with
anywhere from 3-6 year terms. The shorter
the loan term, the larger the monthly
payments will be. On the flip side, the
total price you pay for the loan will
be cheaper than a loan with a longer term.
You'll pay less in interest on a loan
with a shorter term.
Never take out an auto loan with a term
that's longer than the amount of time
you plan to keep the vehicle. Otherwise,
you'll end up throwing away money on a
vehicle you no longer own. Also, if possible,
try to get a vehicle with a warranty that
runs throughout at least most of the term
of the loan. You don't want to get stuck
paying for costly repairs at the same
time you're paying off your auto loan.
The most important thing to consider
before taking out an auto loan, is how
much you can afford to pay for the loan
on a monthly basis. Kelly Blue Book and
Capital One suggest no more than 15-20
percent of your monthly budget should
go toward your vehicle. If you'll end
up spending more than that, even with
a longer loan term, you should consider
looking for a cheaper automobile.
By considering the many factors that
influence the true costs of an auto loan
you may save money in the long run and
improve your credit rating. If you do
your homework before signing the dotted
line, you'll find a loan that is right
for you.
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John Campbell is the writer and editor
of CashBuzz, A financial portal for the
rest of us. Check out http://www.cashbuzz.com
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