If you’re in the market for a new car, but have no idea how to finance it, read on. This quick guide will help you navigate the world of auto loans and find one that’s right for your needs and budget. We’ll explain what an auto loan is and how it works, plus share tips on how to get approved for one without blowing your budget or delaying your purchase.
What to know about getting an auto loan
- You’ve decided to buy a car, but you don’t know where to start. The process of getting an auto loan can seem overwhelming at first, so it’s important to understand what you’re getting into before making any decisions.
- An auto loan is a type of financing for purchasing a vehicle that has an interest rate attached and must be paid back over time, generally over several years.
- There are two main types of auto loans: new car loans and used car loans. New car loans are typically used for more expensive vehicles such as SUVs or sports cars; in contrast, the interest rates on used car loans tend to be lower since they are associated with less expensive vehicles with lower resale value (and thus less risk). However, some lenders offer new and used vehicle programs simultaneously—which allows you greater flexibility when choosing which type works best for your situation!
- Getting approved is all about having good credit history—which means paying off debts on time and keeping your credit card balances low relative to their limits at all times—so if yours isn’t great yet but improving steadily every month through consistent payments then this might not apply quite yet.* What paperwork do I need? Generally speaking there will only be one application form plus some supporting documentation such as bank statements from within past few months showing income amounting significantly more than debt amounts owed.* How do I know if I’m getting ripped off? All financial products come down ultimately being based upon trust between parties involved: lender trusts borrower will pay back loan while borrower trusts lender won’t unfairly charge high interest rates despite taking risks associated with lending money out without collateralized assets
How to get a car loan
- Get pre-approved. Before you even start looking at cars, it’s important to get pre-approved for a car loan. That way, when you make an offer on a vehicle, the dealer knows what kind of financing you have lined up and won’t try to sell you more than what your budget can handle.
- Shop around for the best deal in terms of interest rate and monthly payments. You should have three or four lenders competing for your business; this means that they’ll all be offering competitive rates and terms—and beating out their competitors is how they’ll convince you to choose them over another lender!
- Don’t go over your budget! When comparing loans from different lenders, always keep in mind how much money is left over after paying off other bills so that there won’t be any surprises later down the road (like having no cash left for emergencies).
- Choose a car loan that fits your needs (such as an auto refinance). This isn’t just about getting approved for financing; it’s also about finding one that works well with your lifestyle and goals—so do some research before signing any papers!
How much will a car loan cost?
While it’s hard to predict exactly how much your car loan will cost, there are some factors that can help you get an estimate.
- Loan amount: The size of your loan is the most obvious factor in determining how much you’ll pay in interest. The higher the amount of money you borrow, the more interest (and thus fees) will be added onto your monthly payment. If, for example, you decide to finance a $25,000 car over five years at 5% APR with 20% down payment (typical for new cars), you’d owe about $588 per month in principal and interest payments over time if your credit score is good enough to qualify for prime rates—but that number could climb as high as $1,082 per month if your credit score isn’t so great and/or if the lender charges more than 6%.
- Interest rate: Your interest rate not only dictates how much money you’ll have to pay back each month; it also determines what kind of overall cost burden comes with financing a vehicle through a bank or car dealership. As mentioned above and explained further below, lower APRs mean smaller monthly payments while higher APRs lead to bigger bills every month—in other words: better rates mean cheaper monthly costs!
Factors that affect car loan price
Your credit score is a big factor in determining the price of your car loan. If you have a good credit rating, meaning that you have been paying off bills and debts on time for many years, then you will likely qualify for a lower interest rate than someone with less than perfect credit. The same is true if you can make a down payment on the vehicle; lenders prefer to see that borrowers are willing to put their money where their mouth is when it comes to purchasing something expensive. Other factors also affect the price of your auto loan:
- Your term of loan (how long until the car is paid off)
- The amount of money borrowed by the borrower (loan amount)
- Loan type (secured vs unsecured)
Tips for getting a car loan
- Get quotes from multiple lenders. When you begin the car loan process, it’s best to get quotes from several different banks and financial institutions. This will give you an idea of how much money you can borrow, as well as what interest rate each lender is offering.
- Understand what your income and assets are worth. In order to determine how much money a lender will be willing to lend you, they’ll need to see proof of your income and assets (including any equity in real estate or stocks). It’s important that you be honest about this information when applying for a car loan—if anything seems off or inaccurate on your application, the bank may not feel comfortable lending money in case something bad happens later down the line (like bankruptcy).
- Be prepared for down payment requirements. Many loans require some form of down payment, which means that if all goes according to plan then at least part-way through owning their new vehicle people will actually own it!
Are there any disadvantages to car loans?
Car loans are a form of debt, which means that you’ll need to make monthly payments for the duration of your loan. While it’s great that you have this car and can use it whenever you want, there may be some disadvantages to car loans:
- You’ll have to pay interest on the money you borrow from the lender. If you have good credit and choose a low interest rate, this cost shouldn’t be too high; however, if your credit score isn’t so good or if lenders think that they may lose money on your loan (if something goes wrong), they might charge higher rates in order to protect themselves from any losses. Generally speaking, though, if your situation allows for it and makes sense for them (they get paid back), then most lenders won’t penalize with higher rates unless there is absolutely no way around it (such as an unusual situation where they would lose more money by reducing their risk).
- You may need up-front money before getting approved by the lender and taking delivery of the vehicle. This means putting down some cash and paying interest on those funds until being fully paid off at some future date when all principal plus interest has been repaid through regular payments made during contract term/loan term agreement with lender company.”
How to save money on a car loan
To get the best car loan, you should:
- Find a good rate. A low interest rate is important when getting a car loan because it can save you thousands of dollars over time. Many banks offer special interest rates for their customers who have good credit. If this is not an option for you, look into other lenders that offer better rates than other banks or credit unions.
- Find a good loan term. The length of your loan will affect how much money each payment will cost and how long it takes to pay off the full debt balance on your auto loan. Longer terms mean lower monthly payments but more interest paid over time and shorter terms mean higher monthly payments but less total interest paid over time (assuming equivalent APRs).
There are many things to consider when buying a car. The cost of the car loan is one thing that people often forget about, but it’s just as important as any other factor. And while interest rates can vary widely, you don’t have to accept whatever rate your lender offers—there are some things you can do to lower it! If you want to get the best possible deal, check out our tips for negotiating with lenders and dealerships below: