5 Things to Know Before Taking a Car Loan

Car loans are extremely helpful for financing vehicle purchases. However, taking out a car loan is a significant financial decision, so it recommended to obtain some key information before making this commitment. Here are some important things that you should consider before taking out a car loan.

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1. Interest Rates Vary Significantly from Loan to Loan

All car loans are not created equally; with each one offering different interest rates. A higher interest rate could translate into a larger amount of money that one will need to pay throughout the life of the loan. Don’t just settle for the first loan that you are offered,and also don’t settle for the loan simply because it has the lowest interest rate. Take the time to shop around and find a car loan that offers acceptable terms with an affordable interest rate.

2. Your Credit Score is Relevant for Car Loan Approval

Whether you get approved for a car loan or not, and at which interest rate, largely depends on your credit score. This score represents the credit worthiness of an individual and lets the bank or money lender know just how reliable one will be at paying back the loan. If you have a bad credit score, take the time to improve this score. If you can bump your credit score up, you may qualify for a car loan with an affordable interest rate that you would not have qualified for otherwise.

3. Do Your Loan Application Within 14 Days

Your credit score will most likely drop once lenders are checking your credit history. However, if all of the lenders check your credit score within a 14-day period, then your credit score will drop less than it would if lenders are checking your credit score for longer than 14 days. This is because when FICO scores are counted, all credit inquiries made in a 14-day period count only as one, having less of an impact on your overall credit score.

4. Choose the Shortest Loan Repayment Period You Can Afford

Shorter loan repayment periods may make your monthly payments more expensive,however, it will also reduce the amount of overall interest that you will be required to pay. If your repayment period is shorter, you will actually save more in the long-run, despite paying more per month. Before you take out a car loan, you should have a very good idea of exactly what you can afford to pay per month and stick to this amount.Don’t let the moneylender convince you to pay the lowest possible amount per month so that you land up spending more in the long run.

5. Pre-approved Car Loan Can Help the Negotiations

Often, most car dealerships will treat customers with pre-approved car loans more favorably during negotiations. This is because they know for sure that the customer will be able to finance the purchasing of a vehicle. If you walk into a dealership with pre-approval for a car loan, you can use this as leverage to help you negotiate the price of the car down. A pre-approved car loan in your hand could mean that the car dealer maybe willing to shave a few hundred, or even a few thousand dollars, off of the car price.

Conclusion

Many people simply cannot afford to buy the cars they want without a loan; making car loans a necessary part of vehicle financing. Getting an affordable car loan that fits into your budget and gives you access to a reliable vehicle is dependent on you fully understanding the terms of the loan.

Your credit score will most likely drop once lenders are checking your credit history. However, if all of the lenders check your credit score within a 14-day period, then your credit score will drop less than it would if lenders are checking your credit score for longer than 14 days. This is because when FICO scores are counted, all credit inquiries made in a 14-day period count only as one, having less of an impact on your overall credit score.