Getting a new car usually means getting a car loan, because they are very large purchases after all. Generally, there are two sources for auto financing: the dealership – which is often not the best option – or a private lender like a bank or financing company. A lot of car buyers opt for the latter rather than the former, and for good reason, as every percentage point off the interest rate means less money per month – and over the loan term – that you’ll be paying.
So, it then behooves the consumer to cultivate options in auto finance. But how to get started looking for the ideal loan?
The first, best step to get the optimal rate on a car loan is the first, best step to getting the optimal price on anything – you get multiple quotes. Ask your bank, talk to a few financing companies and get an idea of what you can expect to be able to get. Lastly, talk to the dealership, too. They can occasionally extend some great offers.
But what makes for a great car loan?
What To Look For
After the loan principle, or the amount of money you need to make the purchase, there are two primary factors that add up to your monthly payment on a car loan and ultimately what you’ll pay over time.
The loan term is the length of the loan. Typically, it’s expressed in a number of months that correspond to a number of years, such as 36, 48, 60, etc. Why they don’t just say three or four year is another matter, but essentially the longer the term, the more payments you’ll make. Your monthly payment will be lower with a longer term, but you’ll pay more in the long run.
The interest rate determines how much on top the base amount that you’ll be paying off, as the higher the annualized percentage rate or APR, the higher the monthly payment and ultimately how much you pay back for the loan. The goal is to get the APR as low as possible. Often enough, your credit rating will largely determine what APR you’ll be offered.
These factors combine to make your loan payment. Generally, shorter terms – such as 36 and 48 month loans – come with lower interest rates but higher monthly payments, since fewer payments are adding up to the total amount owed for the car loan. Longer terms – such as 60 and 72 month terms – carry higher interest rates, but lower monthly payments as you’ll make more of them.
There are, of course, other variables. Down payments take away from the principle and thus reduce the amount needed to finance. Ancillaries such as extended warranties, breakdown protection, roadside assistance and gap coverage, will also add to your monthly outlay. There’s also tax and title fees, which usually are added to the loan principle.
Plenty of car loan calculators are out there to show you how this balance works out, but you’ll have to know what you can make work with your budget.
Many smart car shoppers start looking for a car loan before even going to the dealership, by applying for a loan through a bank, credit union or financing company to get a loan offer. Match Financial can help by submitting your application to multiple lenders and getting a great loan offer available from the lenders in our network of lending partners. By getting ahead of the curve, most of the financing hassle is taken care of for you, letting you worry more about getting the best vehicle to fit your needs.