How to get a Car Loan

Securing a car loan is a relatively easy matter, though not all loans are equal. Before rushing headlong into the first available deal it pays to take the time to check personal finances and work out exactly what size of loan if affordable. It is perhaps worth forgoing the car of ones dreams if it means overstretching the budget on repayments. Being prepared will help to ensure the most suitable and fiscally sound loan for individual circumstances is found. This means acquainting oneself with the type of loans on offer, and comparison shopping.

The most certain way of obtaining a car loan with preferential interest rates is to ensure ones credit score is at its peak. A high score equates to lower interest charges, thus representing a saving on the total amount repaid over the term of the loan. Those with no, or little established credit, may consider asking a co-signer to stand as guarantor for the loan, but be certain they understand all the implications and the consequences of default.

Car loans can be obtained from banks, credit unions, online, and from car dealerships. It is always best to have a pre-approved car loan in place before visiting the dealerships, as it allows for an upper hand in the negotiations. When determining how much one needs to borrow it is important to consider the additional costs that come with being a car owner, such as insurance, taxes, maintenance and running costs. Don’t stretch the budget too far on loan repayments and be left struggling to meet the other costs.

A sizable down payment is highly recommended, as it represents immediate equity in the vehicle. It will also help to keep the costs of the loan down, and go some way to factoring against depreciation costs. A good deposit will help to secure a good loan. Borrowers need to choose between a secured and unsecured car loan. Purchasing a brand now vehicle one is more likely to be required to provide the vehicle as collateral, but wherever possible it is more prudent to apply for an unsecured loan.

With a secured loan, if the car is provided as collateral, the lender retains the rights of possession to the vehicle until the loan is repaid in full. An unsecured loan gives outright ownership of the car to the buyer. Lenders can repossess the vehicle purchased under a secured loan with little or no notice, and the vehicle can be sold on for a fraction of its worth to cover the remainder of the loan.

There may still be a shortfall for the car buyer to pay even though the car has been repossessed. Obviously one is still obligated to make monthly repayments with an unsecured loan, but the risk of speedy repossession is negated.

Secured loans can be taken over a longer term than unsecured ones, but cost more in interest in the long run. It is sensible to take an unsecured loan for the shortest affordable term to avoid paying unnecessary interest. Interest rates tend to be lower on secured loans, thus represent a lower monthly payment.

Whichever type of loan is selected it is important to read the documentation thoroughly, paying particular attention to any penalty clauses and fees. It is advisable to avoid any loan which carries a penalty clause, and shop around for a better deal.

It is completely acceptable to apply for several loans, though this is best done within a short time frame to prevent a negative impact on credit scores. Having secured several pre-approved offers the buyer can then consider to opt for one of those or to choose a loan from a dealership. There is no obligation to take a pre-approved loan. Those who are prepared by having a pre-approved loan in place will find that they may be offered a better rate by the dealer.

Having secured a loan and purchased a car, there is the continuing monthly obligation to meet payments in a timely fashion. Responsible repayment of the loan will show as a positive on ones credit report. Those who have the financial means will benefit most by paying off the loan early and thus saving on overall interest costs. The sooner the loan obligation is gone the more likely the owner is to be able to save the monthly installment amount for a future car purchase in cash.