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According to Kelly's blue book, the average price of light vehicles in the United States was close to $38000 in March 2020. Of course, the price depends on whether you want a small economy car, a luxury midsize car, an SUV, or something in between. However, if you apply for car finance, the total amount you pay for a car depends on several other factors.

Get information about car finance so you can make the best decision the next time you buy a car.

Decide whether to choose car finance

Whether you should fund your next car purchase is a personal decision. Most people raise money because they don't have an additional $20000 to $50000 to sell. But if you have cash, buying a car directly is the most economical way.

For most people, deciding whether to buy a car comes down to several considerations:

Do you need this car to ensure monthly payment for the next few years?

Is the monthly payment within your personal budget?

Is this transaction, including the interest rate, appropriate?

Factors to consider when choosing an auto loan

Obviously, the first consideration is whether you can afford the car. But to understand this, you need to consider several factors.

Total purchase price. The total price has the greatest impact on the price of your car. It includes the price of the car and any additional services you are funding. Depending on your state and your own preferences, this may include additional options for vehicles, taxes and other fees, and warranty coverage.

The interest rate or Apr. interest rate is usually the second largest factor in determining how much you have to pay for the car you borrow. APR sounds complicated, but the most important thing is that the higher it is, the more money you pay. Consider a $30000 car loan with an interest rate of 6% and a term of 5 years. You have to pay a total of $34799 for the car. For the same loan, a 9% interest rate means you have to pay $37365 for the car.

Terms. The term of car finance is the length of time you have to repay the loan. The longer the extension period, the less you will pay each month. But the faster you repay the loan, the less interest you pay. Edmunds pointed out that at present, the average term of automobile loans is 72 months, that is, 6 years, but it recommends that the term of loans that can be effectively repaid should not exceed 5 years.

It is important to consider the actual situation of purchasing vehicles. If you have applied for a car loan for eight years, will your car still work in the last few years? If you are not careful, you may have to pay a lot of money every month, and you have to pay for the repair of an old car.

Car purchase without credit

As long as you have cash, you can buy a car at any time. If you have no credit or bad credit, your options for buying a car may be limited. But this does not mean that it is impossible to get a car loan without credit.

Many banks and lenders are willing to work with people with limited credit records. However, your interest rate may be higher than that required by people with good credit. The money you can borrow may be limited, so you probably shouldn't start thinking about luxury SUVs. A trick to improve your chances of buying a car is to pay as much cash in advance as possible when you buy a car.

If you can't get a car loan yourself, you can consider a co-signer. Getting someone else to sign your loan has both advantages and disadvantages, but it may get you into the credit game or you'll be locked up.

Personal loan and auto loan: which is better?

Many people want to know whether they should use personal loans to buy cars, or whether the two financing methods are really different. Although technically speaking, an automobile loan is a kind of personal loan, it is different from a personal loan.

Personal loans are usually unsecured loans provided in a relatively short period of time. The money you get from a personal loan can usually be used for a variety of purposes. In some cases, this may include buying a car. There are some good reasons to buy a car with a personal loan:

If you buy a car from a private seller, a personal loan can speed up the process.

Traditional auto loans usually require full insurance for vehicles. Personal loans and liability insurance may be cheaper.

Loan institutions are usually not interested in cars that can't drive normally, so if you want to buy a project car to repair in the garage during downtime, a personal loan may be a better choice.

But personal loans do not have to be linked to cars like car loans. This means that if you stop paying back the loan, the lender may not be able to recover the car. As this increases the risk of lenders, they may charge higher interest rates than traditional car loans. Compared with car loans, personal loans are usually shorter in terms and lower in amount, which may make it more difficult for you to buy a car with personal loans.

Steps to follow when buying a car

Before you start applying for a car loan, review the six steps you should take.

Check your credit history to see if you may be approved for a loan. Your credit also has a great impact on your interest rate. If your credit is too low and your interest rate will be prohibitively high, you'd better wait until you can establish or repair your credit before applying for a car loan. Register for extra credit and view the 28 FICO scores of all three credit institutions.

Study car loan options and find the one that suits you. Avoid applying too many times because these difficult questions will reduce your credit score. The average interest rate of a 60-month auto loan is 27% (as of April 13, 2020).

Let your trade-in valuation. The dealer may give you money to exchange the old for the new. This reduces the price you pay for your car, thereby reducing how much you need to borrow. Thousands of dollars may mean more affordable loans or even the difference between approval and disapproval.

Pre-qualify for the loan online. Although most dealers will help you apply for a loan, if you enter the dealer with funds, you will be in a better buying position. In addition, if you pass the prequalification, you will know what you can do, so there won't be too many surprises.

Obtain Prequalification

Buy from a trusted dealer. Unfortunately, some dealers and other sellers will start with people who are in urgent need of cars. They may charge high interest or sell you a car that is not worth the money you pay. Regardless of your financial situation, always try to work with dealers you can trust.

Talk to your auto insurance company. Different cars will bear different car insurance costs. Call your insurance company before the sale to discuss possible rate changes so that you won't be surprised by the increase in premiums afterward.

Besides buying a house, buying a car is one of the most important financial decisions in your life, and you may do it more than once. Before you start financing, make sure you understand the context of auto financing.

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