How to Best Compare Car Loans
When you’re considering buying a car and taking out a car loan, you’re going to want to find the best deal for you. Part of what goes into getting that best deal is finding the loan with the lowest interest rate.
Getting the loan with the lowest interest rate is an important part of saving money on a vehicle. To best compare the cost of a car, you’re going to have to have consider several crucially important factors. To compare loans, you will need to gather interest rates, terms, fees, and more offered by the various potential lending institutions that you can choose to work with. Regardless of what kind of car you are looking for, and what your credit score is, there are car loan options out there for you. It’s all about finding the best one.
What You Should Look For
Good car loans are based on several factors that you will have to do research on. Those factors include the amount of the loan, the loan’s Annual Percentage Rate – or APR -, and the payment term of the loan. Let’s break down each of those three factors.
-Loan Amount:This one is pretty straight forward. The loan amount is the total cost of the loan. It is important, however, to keep in mind that in the end you will have to expect to pay more than the cost of the loan. That is because the total cost of the loan includes not only the loan amount, but the interest rate added to each payment, any fees that are attached.
-Annual Percentage Rate: This is one of the key numbers that you have to pay attention to before you take out a loan. The APR is the yearly interest rate added to the total cost of the loan. The higher the APR, the more money you will owe on the loan. To simplify this, a $20,000 loan with an APR of 6% will cost you more than that same loan amount with a 4% loan. It seems straight forward, but it’s easy to forget when you’re not trained to take all of these numbers into consideration.
-Loan Term: This is a crucially important factor of any loan and is easy to overlook. If you are offered a term payment of 3 years with a higher monthly payment or a term payment of 5 years with a lower monthly payment, you may be inclined to take the option with the lower monthly payments. Instead of thinking month to month, however, you should consider the overall cost of the loan. Typically, the longer the loan payment term, the more you are going to be paying overall. That’s because the longer you remain on loan term, the longer you’ll be paying back interest. Think about it this way, a $15,000 loan at 6.5% APR paid over the course of 36 months will have a higher monthly payment $460 per month, and a total interest of $1,500. The same loan with the same APR paid over the course of 60 months will have a lower monthly payment ($293), but you will ultimately pay $2,610 in interest — $1,110 more. If you can manage to pay the higher monthly payments, it’s always better to opt for that option.
Where to Apply for Loans
A great way to find a great loan is to check in with your bank, especially if you have a good relationship with them. If you have held a checking or saving account with a bank for years, they may be more than willing to offer you a competitive loan rate.
You can also head to a credit union. Thanks to their low operating costs, credit unions often offer competitive loan rates. They do typically only offer to members, so if you want to go this way you will have to be prepared to do so.
Even if you find that your bank or credit union is prepared to offer you a favorable auto loan, you should also see if you can use these potential loans as leverage when going to an auto dealership. Auto dealerships can also offer potential buyers auto loans. With the added pressure for them to get you into one of their cars, they may be compelled to offer you a great loan rate.
While car dealerships do not usually have the best loan rates, it is certainly worth it to see what they have to offer. If you are interested in going this route, do your research ahead of time. Make sure to read the fine print as well because while some dealerships offer good loan rates, they can cover the costs on their end by not offering a rebate on the car if you take the loan.
When You’re Ready to Apply
When you’re ready to apply, there are several steps you should take to continue the process.
1. You’re going to want to determine the amount of money you can put towards a down payment. This is going to dictate the amount of interest that you will have to pay. A larger down payment can also help you qualify for lower interest rates.
2. If you are considering borrowing money from a less established lender –such as an online lender or a smaller lender – make sure you do your due diligence. Check in with the Better Business Bureau and see if there are any red flags you should be aware of.
3. Apply for multiple loans, and do it all within a month. If there are multiple loans that you are interested in, don’t hesitate to apply for multiples. After all, doing this makes it even easier to compare the fine details of each loan. It is important to remember to take care of your applications within as short an amount of time as possible, because this will have the smallest impact on your credit score.
Compare Your Options
Now that you’re ready to compare, make sure to get down to the nitty gritty and compare the numbers. Find a loan calculator online and enter the key information including the price of the car, the down payment you can pay, the interest rate of your potential loan, and the term of the loan. Doing this will help you decide which loan will be the most cost effective in the long run.
You will also want to consider the potential perks or inconveniences that come with a potential loan. How easy is it to make payments? Can you set up automatic payments to avoid missing on altogether? Does your loan come with a prepayment fee (which means you have to pay if you can pay off your loan in full early)? Make sure you get the information on all of these questions before you finally decide to sing on the dotted line.