What are the different types of loans to finance your car?
Auto loans are one of the most common methods used to pay for a new car. This type of financing has a relatively short term. While some drivers will apply for an auto loan on their own, others will work with a car dealership’s financing department to set up a loan.
Before you apply for a new auto loan and drive away in your dream vehicle, you should spend time learning more about what car loans are, how they work and how to set up a monthly car payment that is affordable for you.
Know Your Auto Financing Options
When you apply for a car loan, you will need to determine how much money you want to use as a down payment. In some cases, you will not have to make a down payment. However, making a down payment creates equity for you and can generate lower monthly auto loan payments.
In addition to the down payment, you also need to think about the term length. You can typically select a term between 36 months and 72 months, but there is some variation to this. A longer term will create lower monthly payments. However, it will also take longer to pay the loan off and result in higher interest unless you make extra payments.
There are two main types of auto loans available:
- Simple Interest Loans – The most common loan type where the interest rate is based on the outstanding balance of the loan. Borrowers can save on interest costs by paying more than their standard monthly payment.
- Pre-Computed Loans – Where all interest and principal payments are pre-calculated before the borrower and lender agree and sign the paperwork. Less common nowadays since it doesn’t allow for early repayment of the loan.
How Auto Lenders Determine Your Interest Rate
Auto loan programs have a tiered rate structure which means individuals who have a higher credit rating usually qualify for the best tier of rates. Those with progressively lower credit scores qualify for progressively higher interest rates.
In addition to the credit scores, the term length that you select also plays a role in the interest rate. Shorter loan terms are usually associated with lower interest rates, and longer terms have higher interest rates.
Other factors that play a role in your interest rate are the loan amount, the down payment and if the car is new or used.
How to Determine Your Loan Payment
Now that you know more about the down payment requirements and how interest rates for car loans are determined, you may be wondering what your loan payment may be for a car that you are interested in buying or leasing. The best way to get an accurate loan payment quote is to apply for your auto loan.
However, if you aren’t ready to take this step, you can use our auto loan payment calculator. When you use the calculator, you can adjust the loan amount, down payment, interest rate and loan term to determine what combination of factors can yield a desirable loan payment for you.
Remember that your actual loan amount may include taxes, title, licenses, an extended warranty cost and loan fees. Therefore, your loan calculator estimates may be slightly lower than the actual payment amount when all things are said and done.
What to Do to Lower Your Car Payment
While some car buyers find that the first loan payment they structure is affordable and even ideal, many car buyers must manipulate the numbers in different ways to arrive at an affordable loan payment. There are several steps you can take to lower your monthly payment.
For example, consider buying a less expensive vehicle, or put more money down on your loan. Another idea is to extend your loan term. However, this should be done with care because it means that you will have a loan payment for longer and have to pay more interest in the long run. If your credit rating or other personal financial factors are generating a higher interest rate, consider adding a co-borrower.
Car loans allow almost anyone to pay for the full cost of a new or gently used vehicle with regular monthly payments spread out over the course of several years. Because this payment will become a part of your regular budget each month, you must ensure that it is affordable for you.
Where to Apply for a Car Loan
After settling on an affordable estimate, you can apply for your car loan in person or online with the dealership. By doing so, you can learn more about the precise loan terms that you can qualify for, getting you one step closer to owning your dream vehicle. Applying for a loan at the dealership is usually convenient and quick since dealers often have an established relationship with lenders.
Other places where you can apply for an auto loan include banks and credit unions. These financial institutions often offer the lowest interest rates if you can secure a loan.
If you’re in the market for a new car, visit Platte City-Airport Chrysler to discuss the financing details with a friendly customer service representative. Then, browse our wide selection of new and used vehicles for sale.