For a select few, buying a new car is as simple as reaching into their wallet and pulling out the cash. However, most people don’t have the money to buy their first car outright, and that’s where first time auto loans enter the picture. With a bit of preparation and some comparison shopping, getting a car loan for the first time doesn’t have to be a hassle.
An auto loan is basically a secured loan, and the car is the collateral. Student car loans can be direct or indirect in nature. With a direct loan, the lender gives the money directly to the buyer. However, most dealerships favor the indirect auto loan, where they are the middleman and the money gets handed right to them.
A loan’s amortization is the moment when it’s paid in full. Even with low rate car loans, the first few payments go toward the interest on the financed amount. After that amount is paid off, the payments are applied toward the principal. There are some factors that determine when a loan will be amortized, such as the finance amount, the loan term and its interest rate. If you want to find out about your loan’s amortization, there are calculators available online. Knowing how long it will take to pay off the loan makes it a lot easier to find the one with the lowest interest rate.
When it’s time to get a car loan, there are some different loan terms to choose from, and generally shorter-duration loans offer better interest rates. If the buyer can pay a higher amount each month, or if they plan to only keep the car for three or four years, then a 36-month loan may be ideal. If they need a bit longer to pay off the vehicle, a 48-, 60- or even 72-month loan may be the best choice.
If the buyer plans to use a trade-in as part or all of their down payment, that can lower the amount they’ll pay each month. For most people, a down payment or a trade-in of between $2,000 and $4,000 will be enough to get a loan with a decent interest rate. The amount that you get for your trade will of course depend on the vehicle’s condition, so make sure that your current car is in relatively good shape.
When the ideal loan is found, and dealer negotiations begin, the buyer should tell the salesperson that they’re going to finance the purchase with their own lender. After that, the dealer will probably offer the buyer a lower price. After all, they stand to make more money if the car buyer uses their in-house lender.
For someone who’s never bought a car before, auto loans can be complex. However, with good planning, and by knowing what to expect from the car dealer, they can go into the buying process with confidence and a clear idea of how much car they can afford.