You drive about 12,000 miles a year or more.
If you don’t like the car you’re driving, then each hour spent on the road is miserable. Whereas, when you love your car, being in the driver seat can feel like a home away from home.
Have you been considering upgrading your vehicle, but haven’t had the money to do it? A car loan could be a great option for you! This article will help explain what a vehicle loan is and how to get qualified.
What loan should you get? Read on to find out!
What Is a Car Loan?
A car loan will allow you to borrow money from the lender for buying, leasing, or refinancing your vehicle. You may choose between an installment plan (fixed monthly payments) and a lease/rental agreement (monthly payment plus depreciation).
Vehicle loans are secured by the title of your vehicle. If you do not meet the terms laid out in your contract with the lender then they have legal ownership of it.
In other words, if you don’t keep up with your car payments, you’ll lose the vehicle. Don’t take out a loan unless you’re positive your finances can handle the additional monthly expense.
After a monthly budget review, are you certain your household can afford loan payments? Great! Now, it’s time to see if you qualify.
How to Qualify
How can you tell if you qualify for a car loan?
Some lenders offer no credit check auto financing so there is no need to worry about whether or not you qualify. Loan requirements vary from one person to the next. Generally, you have to be being 18 years old, and have proof of employment
Are you worried you might not qualify for a vehicle loan?
Then get a co-signer. A co-signer is someone that agrees to take responsibility for your loan if you are unable to meet the terms of repayment. If you have someone with good credit, they may be able to help get approved even if their financial situation isn’t great.
Down Payments
Most Americans have less than $1,000 in savings to spend on things like cars. Thankfully, a vehicle loan will give people an opportunity to purchase a vehicle without having all the cash on hand.
However, it still helps to have a down payment. Putting down 20% will usually get you the best interest rates, and that’s always a good idea when it comes to your finances.
If you can afford to put more than 20% down, do it! The more you put down, the more reasonable your payments will be.
Types of Loans
There are many different options for getting financing for a vehicle purchase, including personal loans, credit cards, or even second mortgages on properties. The type of loan someone should consider depends on what they can afford and how long they need their money for.
For example, if one wants to finance the entire cost of the vehicle up-front without monthly payments then they would want an extended payment plan with no interest in which all payments go towards paying off the full price over a period as short as six months or years (depending on what is offered).
Which Vehicle Loan Type Is Right for You?
How do you know what vehicle loan is best for you?
The best vehicle loan for you is usually the one that has the lowest monthly payment and a fixed term. It’s also important to consider what type of vehicle you want, as some loans are only available on specific vehicles or models.
We suggest looking for safe cars, with the latest protection features, to help keep insurance rates down. You’ll also enjoy the peace of mind knowing you’re well guarded on the road.
When to Lease
Should you lease your car or take out a car loan? When you take out a loan, you’re making payments to own the vehicle. Whereas, leasing a car is similar to renting a vehicle. You don’t own the car that you’re leasing.
What does it mean to lease a car, exactly? Leases are a financial agreement with a set amount of time.
For a lease, you usually pay an upfront payment in addition to monthly payments. When it comes time to return the car, there’s no need for any paperwork or hassle as all that is done by your dealership before you make your purchase.
Some people might think they will save more money if they buy their car outright instead of taking out a loan but when it comes down to it, most consumers don’t end up saving much at all because cars depreciate so quickly.
If you have bad credit, then leasing may be the best option available to you With newer models come better safety features like airbags. Considering vehicle depreciation, leasing can be a savvy financial choice. After all, you won’t be paying for the whole car.
Lease Types
There are two types of leasing, open-ended and closed. Open-ended leases allow buyers to turn in their vehicle at any time; however, they will be responsible for paying a “buyout fee.” Closed leases require that drivers return the leased vehicle when it reaches its determined mileage limit or pays an additional charge if it has exceeded this amount
When looking into financing options, remember that people with good credit can receive lower interest rates than those who have bad credit.
Lastly, a lease will be your target if you’re looking to drive an affordable new model, but don’t have the cash upfront. Using a lease, lenders can offer buyers all-inclusive insurance packages in addition to financing their purchase (like collision coverage).
Good Loan Rates
How can you tell if the car loan rates you’re seeing are fair? First, it helps to understand what goes into calculating payments.
Vehicle loan rates depend on several factors, including credit score and income levels. A good vehicle loan rate makes sense for your financial situation and meets all needs without feeling too much like a burden in terms of repayment.
The Federal Reserve Bank’s website provides information about personal loans as well as how to calculate payments or find a car loan calculator.
You can also find online credit monitoring sites that offer free services such as monitoring changes to credit scores, finding personalized recommendations for lenders or insurance providers based on the user’s specific profile, and more. This can be helpful when it comes time for applying for financing because they can give customers very accurate estimates about what bank will approve them given their current finances.
Dealer Financing
Are you buying from a dealership or personal owner?
An auto dealer can usually help the most when it comes to financing. Dealers can offer loan rates to customers who purchase their vehicle through the dealership.
Auto dealers are typically licensed by law and must adhere to strict guidelines to provide financing services. Car dealerships often have relationships with banks that allow them to give approved borrowers loans up to 80% of the value of the car on top of any trade-in allowance offered by the customer.
While this may seem like an attractive option, keep in mind that when financing through a dealership, there’s always going to be high-pressure sales tactics.
When it comes time for paying off your monthly installments you will be able to deduct these payments from your taxable income. There’s not much downside to monthly payments if you’re looking at the big picture.
Arguably, the biggest downside to vehicle loans is the length of time it takes for you to own your vehicle. Let’s say in say 6 or 7 years from now, interest rates on new vehicles are higher than what was offered when you originally financed your car. If interest ates rise, then you’ll be stuck paying more money each month because the residual value will have dropped significantly.
Why Trade-In?
Do you want to make the payments for your car more reasonable? Then you should consider trading in your old vehicle at the dealership you’re purchasing a new one from.
Dealers will offer you a trade-in allowance that can give you more value for your old car. Sometimes, trade-ins are a way for dealers to attract new customers. Other times, trade-ins offer significant savings. It’ll depend on your car’s current value.
You might not think your old car will help you save, but you’d be surprised. Even an older model car with high mileage, and damage, could save you thousands on your new car purchase. It’s worth your time to find out what the dealer will offer.
Love Driving Again
Whether you’re looking for a personal car loan, or to finance your new business venture, there are many options available. Remember that the type of vehicle you buy will affect how much money you’ll need to borrow and what rates are offered.
Also, if bad credit is holding back from buying something nice, consider leasing rather than taking out a long-term loan with high-interest rates. Reach out to a financial advisor today to decide if you should take out a lease or loan! For more tips, read another article.