An Overview of Auto Loans

Written by: George Smith
06/24/2019

auto-loans-overview

One of the most expensive products that a person will ever buy is a car, truck or sport utility vehicle. Since vehicles are quite expensive, most people will need to get financing in order to purchase one. As a result, they will need to get an auto loan. Consumers who are looking to get an auto loan will need to consider a number of factors so that they get the best financing available. They will need to know about the qualification criteria, interest rates, down payments, terms and how they can apply. By knowing these things, individuals will be in position to more easily get their vehicle financed with an auto loan.

HOW TO QUALIFY

Before getting an auto loan and purchasing a vehicle, consumers will first need to know how they can qualify for an auto loan. Whenever a consumer looks to get an auto loan, they will be evaluated on things such as their credit rating and their income. They will also be asked about any vehicles they can trade in to help with the down payment for financing. Those who have good credit and a stable income will be in better position to get an auto loan that offers a reasonable interest rate as well as more purchasing power. Knowing the exact qualifications for an auto loan is a vital first step in getting the financing you need for a vehicle.

WHERE TO GET ONE

There are many places where you can go to get an auto loan. These places include banks, credit unions and dealerships. Each of these entities have their advantages and disadvantages. As a result, it will be important for consumers to evaluate the qualification criteria of each one in order to find the lender that is best for their needs.

Traditional banks are a good place to get an auto loan. These organizations are financial institutions that offer auto loans directly to consumers. Since banks provide auto loans directly to the consumer, they will not have high interest rates compared to dealerships. As a result, they will be able t provide consumers with very affordable auto loans.

Another place to get an auto loan is through credit unions. These are financial institutions in which individual account holders known as members pool their money together into the institution. Since credit unions are not for profit organizations, they will usually offer auto loans at the lowest interest rates. Therefore, credit unions are among the most affordable places to go when looking for auto financing.

When someone is looking to finance a car, they can also get one at the dealership. Getting auto financing at the dealership provides consumers with more convenience as they can get financed shortly after browsing a car. However, dealerships are middlemen in auto loans and will therefore have higher interest rates.

TERM

Once you decide to finance a car and get an auto loan, it will be important to know about the term of the loan. Each auto loan that you get will have a term that is the duration of the time you have to pay it back. Auto loans are usually offered in terms that last between three and seven years. Depending on how long you wish to finance a car as well as how quickly you can pay it back, you will need to provide lenders with a loan term that you want. Most auto loans are given for a span of five years. However, those who are willing to pay off the loan as soon as possible can elect for a three year term and those looking to make the loan payments as low as possible can elect for the seven year loan term.

INTEREST RATE

The next part of an auto loan is the interest rate. This is a certain percentage that a lender charges on top of the principal balance. It is the profit margin that the lender looks to make off of the loan. In order to make an auto loan more affordable as well as allow you to get more financing, you will need a low interest rate. It will be important to have a good credit rating in order to get the lowest interest rates available. However, if your credit is below average, then you will have an interest rate that is high which can be well into the double digits. The average auto loan has an interest rate of about 5%.

DOWN PAYMENT

Similar to buying a house, getting a loan for a vehicle will often require that you make a down payment. This is usually about 5% to 10% of the vehicle price. In order to make this down payment, you can either provide cash or you can use the vehicle you have as a trade in. If you are looking to maximize the down payment, you will benefit by using both cash and your trade in vehicle.

LOAN AMOUNTS

Auto loans have certain amounts that a consumer needs to pay back over time. The loan amount is usually the funding provided by the lender minus the down payment. Most auto loan amounts are about $20,000 but they can be higher or lower depending on the price of a vehicle. High end vehicles will usually have auto loan amounts that are well over $30,000 and $40,000 while economy cars can have loan amounts as low as $10,000. The loan amount is very important because it will determine how much you funding you can get as well as how much you can afford when looking to buy a car.

HOW TO APPLY

If a consumer is looking to get an auto loan, they will need to apply for one. There are a number of steps to take in order to apply for an auto loan. The first step is to fill out an application where you reveal your name, address, income, employer and the amount you want financed. Once you fill out the application, a salesman at a dealership or a bank employee will evaluate the loan by checking your credit. Depending on your credit rating and income, they will make a decision on how much to lend you. During the application process, you will need to provide proof of income such a bank statements, tax returns or recent pay stubs. Once everything is reviewed and approved, you will sign a contract and get the loan.


LIKE US ON FACEBOOK   

Related Posts


An Overview of Auto Loans

Share Tweet