Before you secure a car loan, there are some things that you should know. Getting a car loan is a serious financial step and is only something you should enter into if you understand the loan process.
Thing #1: Your Credit Score Is Extremely Important
When it comes to getting a car loan, your credit score is extremely important. If your credit score is extremely low, and the reasons for your credit score being low are recent, you are going to have a hard time getting a lender to offer you a car loan. If your credit score is fair, you may be able to secure a car loan, but you should be prepared to face extremely high-interest rates on the loan. If you have a good or great credit score, you are going to have a lot more flexibility in finding competitive and fair loan terms.
You should know what your credit score is so you know what type of car loan you will be offered. Knowing your credit score will also allow you to determine if you want to get a car loan right now or wait until your score improves.
Thing #2: Always Make a Down Payment
With a car loan, you are going to want to make as big of a down payment as you can afford. Many people think that 20% if the maximum that they can put down for a car loan, when in fact that is not true. You can pay off as much of the car as you want if there is still something left for the lender to finance for you! Generally, the larger the down payment, the smaller your monthly payments will be.
Thing #3: Keep the Terms Short
With auto loan services, it is important to pay attention to how long the term is. A shorter loan is generally better than a longer loan. With a shorter loan term, you will be paying less interest over the lifetime of the loan.
With a shorter loan term, you will own the vehicle sooner, allowing you to adjust the insurance coverage you have on the loan. Plus, you want to pay off the car before the value of the car depreciates too much. Avoid five- or six-year loan terms; aim for a loan amount you can pay off in three to four years.
Thing #4: Don't Finance the Taxes & Fees
When you purchase a vehicle, in addition to the purchasing price of the vehicle, you are going to need to pay certain fees, such as the licensing and registration fee. Depending on the state you live in, you will also have to pay taxes on the purchase. Don't finance these expenses; instead, pay them off when you purchase the car. Paying off taxes and fees when you purchase the car will save you money over the long run.
When it comes to financing a vehicle, know your credit score so you know what type of loan you are likely to be offered. Save up for a big down payment and pay the taxes and fees, don't finance them. Keep the loan term as short as possible to save on interest.