Is an Auto Loan Right for You?
News If you are in need of, or just want to purchase a new car, you may be considering taking out an auto loan to help you pay for it. More than likely you are also probably trying to decide if a car loan is a right option for you. This is not an easy decision to make and there are many factors you should consider before obtaining a car loan.
First, you need to understand what a car loan is and how the repayment process works, then you need to determine if you have enough money in your budget to make the required monthly car payment. You should also realize that your credit score affects your ability to get a car loan and determine what type of auto loan would work best for you. Here are a few things for you to look into when considering an auto loan.
Understanding Auto Loans When you obtain a loan, it means that you are borrowing money from a lender. In the case of a car loan, the lender is typically a financial institution or the car dealership itself. This loan needs to be paid back to the lender, by you, over a predetermined timeframe. The lender will include interest on the amount of money you borrow, and this amount must also be repaid.
Your specific interest rate will depend on several factors: your credit score rating, the amount of money you borrow, and the place where you obtain the loan. Typically, you are required to make a payment on your auto loan on a monthly basis, but payments could also be required on a weekly or bi-weekly basis, depending on the terms of your loan. So consider how long you want to be making these payments when making these decisions. You may also want to consider your long term plans and how they can be affected by this too. You may just have a whole different perspective.
Payment Calculator When considering a car loan, make sure you make enough money to make your car payment each month. Your lender or the car dealership will be able to tell you before you enter into a loan agreement what your weekly, bi-weekly or monthly payments are. This will allow you to compare that amount with your current budget to ensure you have enough money coming in to make the payments on time. You can also use an online payment calculator to get a general idea of what your monthly payments will be each month. Remember, you need to factor this in as a priority as this will definitely impact your credit score in the long run and affect or help you make it easier to purchase another car in the future.
Credit Score Your lender may decide to obtain a copy of your credit report and your credit score to determine your eligibility for an auto loan. Your credit score is an important number when trying to get a loan because lenders use it to determine the likelihood of you repaying a loan.
A credit score is based on several factors: the length of your credit history, amount of outstanding debt, payment history, and whether or not you have any delinquent payments. Depending on the results of your credit score, the lender will determine if they will give you the loan or not. I
if you do not qualify for a loan through a financial institution, consider applying for financing through a car dealership. Many times a dealer is not as stringent on the requirements for loan approval. They will frequently lend money to people with bad or no credit.
Many times this is one of the best channels to go with as car dealers already have a direct relationship with many financial institutions and at times requirements may be a bit more flexible.
Is an Auto Loan Right for You? Unfortunately, most people do not have enough money sitting in their savings account to purchase a car with cash. This may mean that the only way you can afford a car is to obtain an auto loan. There is absolutely nothing to be ashamed of if you need to go this route. If fact, almost every person in their lifetime borrows money, from a bank, of course, to purchase a car at some point in their life. The key is to make sure you will be able to make your payments on time. If you were hoping for a new car, but the payments are too high, you may need to settle for a less expensive used car instead.
You can also shop around for different lenders to get the best interest rate for your auto loan. In the end, you are the best person who will determine what is best for you, but be sure to purchase with consciousness and not emotion. Otherwise, you may end up finding yourself stuck with a much higher payment than you ever wanted.
Martin Rocha is the Marketing & Internet Director at the Jack Key Auto Group. Jack Key is a full-service dealer group offering sales and service of used cars and new Chrysler, Dodge, Ford, Honda, Jeep, Kia, Lincoln, Nissan and Ram trucks.