Car Loan Guide: Things You Need To Know When Buying A Car

By Author: Tina Roth
Total Articles: 3
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If you’re planning to buy a car, before you start shopping for the car, you need to start hunting for the right car loan. That’s the way to do it, find the right auto loan and then find a car that fits the loan’s requirements. But sadly, a lot of people tend to do the exact opposite. They start with finding the car and then hunt for a car loan that will help them get that specific car. If you’re guilty of doing that, it’s time to change your approach to car loan.

To choose the right car loan for you, you will need to know what to look for and the potential pitfalls to avoid. Read on to find out everything you need to look for when choosing a car loan.

Get A Car Loan Pre-Approval

Getting a pre-approved car loan can make the entire car buying process a lot easier. Not only will you know just how much you can spend on a car, you also get leverage as a serious buyer. When you have a financing offer from a bank or lender, sellers give you preference as you are a “sure sell”. This also gives you the upper hand when it comes to price negotiation, as you have a better chance of getting a higher-end ...
... or newer model car for a lesser price, quoting your pre-approval offer as the amount you can afford to pay for the car. Your loan pre-approval is your trump card when it comes to buying a car. It is also your reference point as far as affordability goes. Knowing how much you can borrow will help you narrow down your choices.

Be Wary of Low Interest Rate Offers

Interest rates on car loans tend to vary significantly between different banks & lenders. So, it’s wise to take your time to compare the different interest rates & find a loan that works for you. But make sure you don’t choose a car loan just because of the low interest rates offered. Many loans come with introductory low interest rates that revert to high interest rates during the course of the loan. So, if you find a loan with very low interest rates, dig in and do some research. Find out how long those introductory rates apply for and what you will be expected to pay once the introductory offer ends.

Avoid an Upside-Down Car Loan Scenario

When your car’s market value is less than the amount you owe on your car loan, you’re in what is called an “upside-down” car loan situation. For instance, let’s say that you still owe $25,000 on a car that you’re looking to sell or trade-in. But the market value of the car is at $15,000. That means you will still owe $10,000 in negative equity if you sell your car. You must then either pay off the loan or if you can’t, the amount that you owe will be added to your new car loan. So, don’t get caught up in a vicious cycle of upside-down car loans.

How can one avoid the upside-down car loan trap? The best way to do that is to consider how many years you are planning to own the car, and then choosing a car loan that equals that length of time. Also, when it’s time for you to sell your car, make sure you go to a reputable car buyer who will pay you fair market price for the car and not try to low ball you.

Check If Extra Repayments Will Incur Penalty Fees

While most car loans have a set repayment schedule, some allow borrowers to make extra repayments. Having such flexibility means that you can pay above the required repayment amount, thereby shortening the length of the loan. Not only that, you also end up paying less as you cut down the interest payment period. When deciding on a car loan, look for one that allows you to make extra repayments without penalising you for it. Some car & personal loans charge a penalty fee if you pay off the loan much earlier than the requisite loan period. So, check about this when looking for a car loan.

Choosing the right car loan can make your car buying experience pleasant and hassle-free. Sure, buying a car is exciting. But it’s also a responsibility and should be taken seriously. So, don’t just opt for the first financing option that you come across. Instead, do your research, find the right loan for you and look for ways in which you can save money (better interest rates& a big down payment). After all, a car is quite a big investment. Don’t be hasty & regret it later; be smart & make a wise decision with your car loan instead.

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