The average price of a new car in America these days is about $36,000, and for used cars, it’s $20,000. Since many of us don’t have that sort of money spare, it can make sense to get a car loan.
Yet, knowing how to pick car loan providers is a crucial step to getting your next car, without spending more than you need to. There are some key factors to consider when choosing a provider that won’t take long to learn.
In this guide, we’ll let you in on some excellent tips on how to pick car loan providers. Read on to learn how you can get the best car loan for your needs.
Table of Contents
Spend Time Checking Interest Rates
Interest rates can vary hugely when it comes to options for loan providers. Interest rates should be one of your primary concerns when comparing loan costs.
For instance, you might get rates as low as 8.98%, and others that are 20% or more, in the current climate. For used cars, the rates are typically a little higher.
Factors that decide the rate you get will be your credit score, vehicle type, and ability to pay among other things. It’s down to you to put in the time spent researching and comparing interest rates for the vehicle you’re planning on purchasing.
You can research online, but you can also approach your main bank and see what they have to offer. If you are going to research online, a good starting point is linked here.
Look at Online Reviews
Online reviews are a great resource nowadays for sifting out reputable and less favored companies in any industry. Car loan providers are no exception to the scrutiny of online reviewers and you can learn a lot from reading what customers have to say.
if you’re wondering where to find legitimate online and verified customer reviews, then check out Trustpilot.com. On there, you should be able to read about major loan providers’ quality of customer service and much more. If a loan provider rates less than 4 stars, you should take a good look at what customers had to say about the company, and maybe move on to another provider if the comments don’t sound good.
Know Different Car Loan Types
There are generally two types of auto loans when considering interest rates: fix-rate and varied rate. Then each of these loan types can be secured or unsecured. It’s important to learn about these loan types to know what will suit your requirements.
If you choose a secured auto loan, you’ll often get the best interest rates. They work by making the car you purchase loan security. So if you fail to repay your loan, the loan provider can take your car.
While secured loans may be the cheapest available, you might not always be able to get one. Loan providers tend to offer these loan types for new vehicles that hold their value. If you can’t get a secured loan then you’ll have the option of an unsecured loan with higher rates of interest.
Fixed-Rate Auto Loans
Fix-rate loans are loans where the provider sets a rate at the start of your loan and you keep that rate for the duration of your loan repayment. A good thing about fixed-rate auto loans is that you can easily budget for the long term.
A fixed-rate loan can be a blessing or a curse though. If you take out this type of loan when interest rates are unusually low, you might end up getting a cheaper loan than a variable rate one, if interest rates rise in the future. If, however, you get a high fixed rate on your loan, you could end up paying a lot more than you would have done with a variable rate loan type if interest rates drop in the future.
Variable Rate Auto Loans
Variable auto loans tend to track base interest rates. The loan provider will often choose to change the rates based on the base rate.
So as we’ve already described, this can be good and bad depending on the general economic outlook of the country. It’s therefore your choice to figure out whether you want to take the risk with a variable-rate loan or go with a fixed rate when interest rates seem reasonable. Either way, you’ll have to take one loan type if you need a vehicle soon.
Watch Out for Balloon Payments
Some loan providers will try to hide “balloon payments” when they sell you a loan. They can do this by offering you incredibly low-interest rates to lure you into a contract. What they don’t mention is towards the end of your repayment schedule there’s a large “balloon payment” involved which will cancel out any money you thought you were saving on low-interest rates.
In some cases, you might opt for a contract with a balloon payment. The reason might be that you’re happy to offset the bulk of the repayment towards the end. Just make sure you run through the numbers if you decide to do this, as the provider might be offering a terrible deal.
Try to Avoid Long Repayment Periods
With low monthly payment amounts, it can be tempting to opt for a long repayment period with a car loan. The issue here is that the longer you have to pay, the more interest you have to pay to the loan provider.
Plus, in the time that it takes to repay all the money, your car may have depreciated by a huge amount. So it’s a good idea to try and agree to the shortest repayment period possible within your budget.
How to Pick Car Loan Providers the Right Way
you should have a much better idea now of how to pick car loan providers. Interest rates and the loan type are key factors to spend time researching about. Also, online reviews are helpful, and watch out for loan providers that offer you balloon payments or super-long loan terms.
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