A car is a nonnegotiable purchase in a lot of cities. Finding the right car loan can mean the difference between a smart financial investment and a money mistake that can affect you for years. Auto financing is an unavoidable reality for some people, but searching for the best car loan rates can help you keep your finances balanced throughout the year.
There are several different types of auto loans, including new car loans, used car loans, preapproved loans and refinanced loans. When new- or used-car loan borrowers finance a vehicle from a lender, the financial institution considers the car collateral. The car is used as security in the event that the borrower defaults on the loan, hence the name “secured loan.”
A number of factors contributes to the car loan rates you’ll be offered, including your FICO score, auto loan terms, type of vehicle, and down payment amount.
Some consumers will spend days making sure they get the lowest price on a car but neglect to shop for the best auto loan.
That’s a mistake.
Car shoppers who don’t have financing in place when they visit the dealership to buy are vulnerable to whatever terms the dealer offers, which might have a much higher interest rate than they could get elsewhere. And because dealers often mark up the interest rate of a loan above what shoppers actually qualify for, those buyers could wind up spending hundreds of dollars more over the course of the loan.
Ultimately, if you’re looking for a car loan, you’ll want to balance its total cost with the monthly payment you can afford. But focusing on the monthly payment could increase the chance that you’ll end up with a bad deal. Be smart: Determine what you’re willing to spend before setting your sights on your dream machine.
