What You need to Know about Auto Loans and Financing

It’s shiny, sexy and smells like a million bucks! You want to feel its power wrapped around you and have people look on in awe as you speed this perfectly designed piece of engineering mastery down the road.

But before that can happen, there is a big problem to overcome first - how to buy the car of your dreams!

Applying for auto financing loans can be complicated and there seems to be so many options out there, which way do you turn and how do you know you are getting the best possible terms available?

All car loans are based on several things - the term or length of the loan, the amount of the down payment and the interest rate.

The term is usually based in months with options of 12, 24, 36, 48, 60 or 72 often available. The longer the loan is stretched out however, the more you pay for the vehicle in the end. Many people feel that making the payment as low as possible by putting it over the longest possible time is the safest way to go - surely they will always be able to make the payment. However, that is an easy way to make a $5000 vehicle turn into a $10,000 vehicle. Always do the math on what your auto loan will cost you when it is all paid up.

The required down payment depends on the vehicle financer and the type of auto financing loan you choose. Banks usually prefer to loan money to someone who is willing to put down some money of their own versus someone who is unable or unwilling to do so - why should they, the bank, take all the risk? Even a down payment as low as 5% keeps the banks happy and does lower the overall cost of the loan a.k.a. the vehicle, over time.

Independent auto loan finance companies are more willing to work with people who are unable to put down any money and understand that sometimes even 5% is too much to raise. Dealerships usually consider your trade-in as a down payment and obviously, the higher the value of the old car, the greater the perceived value of the down payment.

The interest rate depends on two things: where ‘prime rate’, or the national interest rate, sits and how much of a credit risk the person applying for the loan is perceived to be over the term of the loan. There are other factors to that play a small part in deciding on a rate of interest such as the longer the term, the higher the interest will be because the risk is spread over a greater length of time. It is worth shopping for the best interest rate if possible and often it is possible to start a ‘bidding’ war between lending companies to see who will give you the best deal especially if you have a down payment or good trade-in to offer.

In general, banks give the lowest rate of interest because they do not take any risks on potential borrowers - they prefer safe and are willing to give better rates to encourage a wealthy and stable clientele. For those of us that are considered not such a safe bet, using an independent lending company to finance your auto loan is an excellent way to build a credit history or to help restore a poor credit rating so you appear to be a safer bet to banks and lenders.

There is no reason why that super sleek and sexy car of your dreams cannot be sitting in your driveway no matter what part of the scale your credit rating lies - it just takes some perseverance in finding an auto finance company that is willing to take on your loan and possibly paying a bit more in interest.

So dream all you want! Soon you will be driving that powerful car, the envy of everyone on your street and enjoying the ride of a lifetime!

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