Car loans, what you need to know!
In order to properly negotiate the financing of a vehicle, it is important to understand the basic mechanics of an auto loan. This will help you make informed decisions and avoid costly financial mistakes.
The Warranty
With a car loan, your vehicle is always used as collateral by the financial institution. If you don't pay back your loan in full, the lender can repossess the vehicle in the event of default. Because newer or newer vehicles are better collateral, they are easier and less expensive to finance than older vehicles. It's a question of risk calculation. To finance a vehicle that is more than 8 years old, you will usually have to get a less advantageous personal loan.
There are three factors that determine the payment amount of a car loan
💵 The loan amount: this is the total amount you borrow to buy your car, before the interest calculation offered to you.
⏱️ The duration of the loan: this is the time allowed for repayment. It varies from 24 to 84 months. This factor affects the interest rate, because the longer the term, the higher the interest rate. The same applies to a lease. In any case, bi-weekly payments instead of monthly payments will save money in the long run because it means 13 monthly payments instead of 12.
📈 The Interest Rate: This is the cost of your loan, expressed as a percentage of the amount you borrow. Interest rates vary depending on your credit history, the term of the loan, the vehicle used as collateral, and the financial institution making the loan. Of course, a clean credit history gives you access to the best financing deals on the market, such as those offered by manufacturers.
Bad credit and car loans
If you have bad credit, a car loan is always available as a 2nd or even 3rd chance loan, but the interest rates are higher and you will need to consult a specialized credit analyst at a reputable dealership to obtain it.
A car loan is an excellent way to quickly improve your credit rating if you meet all the repayment requirements. However, if the rates you are offered seem abusive, you are under no obligation to accept them. In fact, it's better to decline and take the time to repair your credit so you don't fall further behind. A few extra points on your credit score can make a big difference when you apply for a loan.
One last detail! Before you apply, make sure all your accounts are up to date (credit cards, cell phone, cable, electric, etc.) to increase your chances of getting approved on reasonable terms.
