• General Information on Car Loans

    For potential car buyers who do not have the immediate means to purchase a car, auto loans make the purchase possible. By borrowing most or all of the money needed to buy the car, a potential car buyer can drive away in a new or used car having only put down a percentage of the price. Thus, auto loans make car ownership possible even for those people with few savings.

    When you take out an auto loan, you are required to sign a contract that states the terms of that loan. Auto loan terms include many items including the APR or annual percentage rate—the interest rate you pay, the repayment schedule and any associated fees or penalties which may apply. Before you take out any loan you should read through the terms thoroughly. There is a lot of fine print, and if you are not careful you could end up with an unfavorable interest rate.

    Besides the amount of money you plan on putting down, auto loan qualification is usually determined by your income and credit score. If you have great credit but don’t earn very much money in a year, the amount lenders might be willing to give you goes down. Likewise, if your credit score is poor, you might get a loan but only with a higher interest rate.

    There are all kinds of auto loans, from 100 percent financing loans, same day loans, to bad credit loans and low APR loans. Look into your options and find out what you might be eligible for. With an auto loan, a new or used car purchase is closer than you think.

    Auto loans are a type of secured loan, meaning that the car that is financed is used as collateral for the loan. Auto loan terms range from 24 months to 72 months, although longer terms are possible on more expensive vehicles. Interest rates on auto loans vary significantly based on personal credit history, whether the car is new or used, down payment, selling price of the vehicle, loan-to-value, and general market conditions.

    You shouls also familiarize yourself with this terminology before you embark on your quest for an auto loan.

    • Annual Percentage Rate: This is a term any car loan borrower must be familiar with, for it indicates the interest rate you will pay on the loan. The car loan you get is not just the amount of money you borrow; it is that plus the accrued interest. The APR is basically the cost of borrowing the money to buy a car.
    • Creditor: This is the person or institution which lends out money for loans.
    • Debtor: This is the term used for the person doing the borrowing.
    • Dealer Financing: This is the term for financing you get through the dealer of the car. It can be a trap, though, so make sure you understand the terms.
    • Default: When a debtor defaults on a loan, they have failed to pay according to its terms.
    • Guaranteed Final Value: Also called the balloon payment, this is the last payment you make when you lease a car and plan to buy it from the owner. It is the value of the leased car after depreciation has been accounted for.
    • Rebate: A rebate is an incentive to the buyer in order to tempt them into buying. It usually takes the form of a lower sale price or a lower APR.
    • Sticker Price: This is the MSRP or the price of the car you see advertised on its windshield. It is the price given publicly, but it is negotiable in most cases.
    • Car Loan Terms: This is very important, for it is the rules of the car loan repayment to which you are agreeing. Look carefully not just at the APR but also the number of months you have to repay the loans and any fees associated with early repayment.

    In any case, a car dealer is likely to be your best choice to arrange a loan for all sales other than private party. Due to volume and strong relationships with lenders, dealerships may be able to offer discounted rates for those in good credit positions, and negotiating power on the dealer’s part can simply help push along an approval for those with marginal to poor credit histories. In any case, an auto loan is a great way to build and maintain credit, and a great way to get behind the wheel of a new car.