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March 6, 2014

Understanding Car Financing

Most people do not have $15,000 or more laying around to buy a car. Therefore, they will finance all or most of the purchase with a loan. However, not all loans are created equal. How do you get a loan, and how do you get a loan with the best terms?

The Process of Getting an Auto Loan

The first step toward getting an auto loan is to apply for it. You can apply at a dealership, at any bank location or online through a dealer or lender website. Typically, you will get the best rates through a local credit union or bank. However, it may be possible to get a good deal through a dealer if you have good enough credit. After you have applied for the loan, you will hear back within 24 hours regarding the loan and how much you are able to borrow.

Use Your Loan as Leverage

If you decide to get a loan before you shop for a car, it gives you leverage at the negotiating table. While you don’t have to use the loan that you were given by another lender, you already know how much you can afford and the terms you can get. This allows you to judge what the dealer is offering against those terms to see which is the best deal for you.

Understanding the Total Cost of a Car

There are several things that you will need to understand before you start shopping for a loan. Although you may be enthralled by a low monthly payment on a car, you should never assume a lower monthly payment means a lower cost for the vehicle. The interest rate, loan term and other fees that you may have to pay will all contribute to the cost of the car. The amount that you get for your trade if you have one will also dictate how much the car costs.

How to Get the Best Interest Rate

How do you get the lowest interest rate on your next vehicle? Those who have good credit tend to get the lowest interest rate because they are less of a credit risk. Putting a large down payment lowers the amount that needs to be financed. That means that you are asking for a lower loan amount and therefore are lowering the risk that the lender has to take. Another easy way to get a good interest rate is to keep the loan term as short as possible. A 36 month loan typically comes at a lower interest rate than a 60 or 72 month loan.

There is a lot that you need to think about when searching for a car loan. First, you need to decide where you will get the loan from. Second, you need to determine how much you can spend before you start negotiating a car deal. Finally, you should learn ways to reduce your interest rate and thereby lower your monthly payment while keeping the loan term to a minimum.

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