What are auto loans?
Auto loans are simply borrowings by individuals seeking to buy a car. Individuals can borrow from financial institutions such as banks, or can utilize auto dealer financing. Now that we have established what an auto loan is, lets look at why people get one considering the cost of repayment and all. The main reason for getting an auto loan is to buy a car (thank you captain obvious). A car can serve a variety of purposes including: for commuting to work on a daily basis, for running your business, for taking your children to school, and more. That is why some individuals who are not financially buoyant may seek to obtain a loan in order to purchase this very useful asset.
Now that we have established the importance of a car, and acceptability of auto loans, let us discuss things you should know before applying for an auto loan.
Things to know before applying for an auto loan
1) You should have known the type of car you wish to purchase. It should fit your needs and taste. For example a mother of three or four may prefer a space bus, as opposed to a sports car. This is because she would need a car with plenty of room to accommodate her young ones.
2) There are conditions that may exist before a loan can be granted to you. A lender who gives out an auto loan is in it to make some returns. They borrow you the bulk of the money required to purchase your dream car and they in return collect the principal and interest on the principal installmentally. So as not to hand out loans to customers who are not credit worthy or with a high risk of default in payment, thorough investigations would be carried out by the bank, and loans would be handed only to those applicants that meet their stringent conditions. Such conditions may be that the applicant is above 18 or 21 years of age, has a stable source of income, and earns above a certain benchmark.
3) Down payments: Some auto lenders may require down payments, and some others may not. Down payment differs from lender to lender; typically it’s about 10% of the price or $1000 whichever is the lower number.
4) Interest rate: You would be required to pay interests on the loan you are taking. Interest rate is usually a percentage of the total amount you are receiving from the bank. Interest rates can be negotiated if you have a good credit score or good negotiating skills. You can get a lower interest rate based on the ability to convince the lending institution that there is little risk of default in payment.
Now that we have analyzed what you should know when planning to take your auto loan, let us now take a look at what you should be looking for in an auto loan.
Things to look out for in an auto loan offer
1) A loan with a reasonable interest: It is very important to get a loan with a reasonable interest rate; this is because you would still pay the principal aside from the interest, and failure to make payments might lead to repossession by the lender. If you do not know the range of competitive interest rates, you can scout the web (internet) for interest rates to find out what the current average auto loan interest rate is, and then compare it to the rate you’re being offered.
2) Low fees and extra charges: Auto lenders charge fees such as application fees, document prep charges or credit score fees. You need to check for the cheapest fees because a more expensive fee would impact negatively on the cost of the loan, thereby making the loan more expensive to the borrower.
3) No hidden charges: you need to read the fine prints well, and carefully scrutinize the contract before agreeing to it. Also, you have the right to demand disclosure of charges upfront before obtaining the loan. Some lenders are fond of hiding costs to make it seem attractive to unsuspecting borrowers; only to overwhelm you with unexpected charges when you finally take the loan.
4) No prepayment penalties: Prepayment of a loan is when you pay off the loan before the loan term expires. Prepayment could come as a result of extra income or excess liquidity at a particular period of time. If there is any chance of prepayment, make sure your online Auto Loan Company charges no prepayment penalties. Otherwise, you’ll be paying an extra fee if you pay off your car loan before the loan term is over.
Now that you have seen what you should know before getting an auto loan and what you should look for in an auto loan, i hope you carry out your research well and get the best loan out there. Remember to choose a lender that makes you feel as if your business is their top priority. Cheers!