The Truth About Auto Loans
May 29, 2019
Consumers receive solicitations for car loans all the time. A mailbox may be full with offers to finance a new or used model. Many drivers don’t think much about how car loans work. Not thinking things through can be unfortunate. Anyone thinking about purchasing a new vehicle should learn a few basic truths about car loans. Through increasing your knowledge and awareness, getting a better deal becomes possible.
Higher Down Payments Work to Your Benefit
A down payment represents money paid upfront on the car. The lender finances the remaining amount through the auto loan. Some buyers prefer to put forth a smaller down payment thinking it saves their liquidity. For the short term, this may be true. Over time, however, you pay interest on the remaining balance. Also, it may take longer to pay off the loan. Both factors drive up the eventual final cost of the car.
Pre-Approvals Aren’t Automatic Guarantees
Receiving a notice indicating you are “pre-approved for an auto loan” means someone labeled you a good prospect for lending. A common misconception about pre-approvals involves the belief a pre-approval represents a final determination. In reality, you could still be turned down for the loan. So, don’t be disappointed if a more thorough vetting doesn’t deliver a desirable result. Would-be borrowers with a good credit history may not be outright turned down during the official loan application process, but they may see offers at a higher than advertised interest rate. Don’t be surprised here. Pre-approval letters often quote the lowest possible APR, which not everyone qualifies.
Even Someone with Poor Credit Can Borrow
Disastrous credit histories plague people who find themselves in difficult financial situations. Credit card companies and mortgage lenders may put a proverbial “X” on these borrowers. When a car breaks down, the financially troubled start to worry. They assume no one will lend to them. In all honesty, many banks won’t lend to such a client. However, bad credit lenders do exist and present an option. Be forewarned: bad credit car loans come with high rates of interest due to the risk involved.
Refinancing Remains an Option on Loans
Bad terms on a car loan are not necessarily forever. Refinancing a loan could be an alternative option. Refinancing is another way of saying you procure a new loan to replace a previous one. The new loan comes with better interest rates and terms. It may take some time to find the best refinancing deal but, once the new and better deal is in place, you will save money.
Keep some final thoughts in mind. Seek out a car loan with your eyes wide open. Don’t rush in or fall into common traps. Make informed decisions about borrowing to get the best deal.