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The Basics of Auto Financing
A variety of factors are at play when someone wants to purchase a new or used car. Naturally the most important among these is the overall price of the car in question. Because most people aren’t usually carrying around the full price of a vehicle in their pockets, it becomes necessary to seek financing. However, for the average consumer the process of attaining an auto loan can be an intimidating one. This is usually due to the widespread variety of:
Things to Consider When Seeking a Car Loan Online
As strange as it may seem companies all across the country will compete with one another to sell you a car, even if you have bad credit. It sounds counterintuitive at first, but when you dig down a little deeper the reasoning and method becomes clearer. Closing sales is what makes any company profitable of course, but what helps mitigate some of the risk for selling a car to someone with less than stellar credit?
Enter the humble internet marketer. Essentially weight of sales numbers serves to counteract the possible risk of lending to someone who might not have the best track record with credit in the past. Sounds like a win-win since the car company gets to sell a car, and the consumer gets themselves a new vehicle. However, there’s a few things that need to be considered first.
For anyone seeking an auto loan online who finds themselves on a third-party website, there is always the unfortunate possibility that said third-party may not be an entirely reputable company. It’s up to the consumer to protect themselves and their information by taking steps to ensure they know who they’re working with to obtain a new/used vehicle.
• Check to see if the company has a physical address and a contact number that works.
• Invasive ads for different irrelevant products are a big red flag and raise the question of what is actually intended to be sold by the company.
• Keep an eye out for frequent grammatical and spelling errors that point to the site being more of a façade than a legitimate consumer connections company.
• If the site displays the better business bureau logo then look them up to ensure that they are indeed listed with the BBB
Following these few simple steps will help to keep your personal information safe and can protect you from scams.
Understanding the Terms of Your Auto Loan
So, you’ve done your due diligence and found a reputable lender that help get you into the vehicle you’ve had your eye on. Suddenly the conversation switches gears while different numbers are starting to be thrown around along with phrases like “loan terms”, “loss of equity”, and “upside down”. So, what does it all mean and how does it apply to you?
It’s important to note that most loan terms are set between 3 and 6 years in duration. While it may seem tempting to accept the longest term possible and present the bare minimum required for a down payment to achieve the smallest monthly payments, there’s a couple things a good lender will advise you of.
While a shorter term will mean higher monthly costs in order to pay off the vehicle in a shorter amount of time, it also usually carries a lower interest rate. This equates to more money saved in the long run since you won’t be paying as much in interest by the end of the loan’s life. Additionally, it helps to avoid your loan going “upside down” which essentially means that the amount you still owe on your vehicle is more than what the vehicle is actually worth.
Adding a down payment to the mix is also extremely helpful in reducing your interest rate, monthly payment, and keeping ahead of your loan to preserve your ability to sell in the future. The more substantial your initial investment, the better the position you’ll be in down the line.
How Your Credit Score Affects Your Car Loan
It may seem like something of a no brainer, but it’s important to realize how your credit score affects your application for auto financing. What those 3 numbers boil down to in the eyes of your lender is how reliably will they receive their return on investment for lending out the money for someone to purchase a vehicle.
Key factors that contribute to a credit score are things like:
• Payment history and whether you’ve been over 30 days late on any recent payments
• Overall debt. How much you owe across all of your
• The age of your oldest credit account. *The older the better*
• Your credit to debt ratio. I.E. how much you owe
vs. how much you have available to use.
All of these criteria, and more, are all gathered together to determine how likely it is that you’ll pay off your principle loan in the accepted term limit. A higher down payment becomes even more crucial when you have bad credit since it becomes more difficult to be approved for financing without one.
What to Do When You Have No Money Down for an Auto Loan?
The requirement to make a down payment, on either a lease or a loan, is another factor that effects car buyers. Most people would prefer not to give additional money to the lender, so they have it for future expenses. However, getting a no-money-down auto-loan is difficult to do if you are applying for vehicle financing, and nearly impossible if you have credit problems.
You must understand, loan companies place such a great level of importance on down payments; this stems from their need to recover some of the balance on the loan, in the event that the borrower defaults. This can really become important if your credit report shows occurrences of:
• Late Payments
• Missed Payments
• No Established Credit
• Bad Credit Scores
By putting money down on a car loan, you are basically trimming off part of the original price of the automobile, which makes it easier to own the car with the monthly payments being reduced. Leasing cannot offer you this same option because down-payment does not position you closer to ownership, but helps to lower your monthly installments.
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