When purchasing a new vehicle, most people don't have enough
funds to pay cash and must obtain car loan financing. After
deciding which type of car to buy, the next important step is
finding a good lender. While you may have no problem qualifying
for car loan financing, it is important to shop around before
deciding upon a lender. You can do this by either visiting local
banks in your area or by researching car loan financing offers
online.
If you have good credit, you may even want to decide upon a
lender before visiting the car dealership. This way you can get
pre-approved for a set amount of cash. Once you have been
preapproved, you know how much you have to spend. You won't be
as tempted to look at cars that are out of your price range. If
dealers know you have already been approved for a loan, they may
be more willing to negotiate a deal. Since most salespeople work
on commission, they will do their best to accommodate someone
who has already been approved for a loan.
Down Payment and Interest Rates
Your initial down payment will affect what type of car loan
financing you receive. The greater your down payment, the lower
rate of interest you can expect to be offered. Auto lenders will
consider you less of a risk if you invest more in the vehicle
upfront. It may be very tempting to apply for car loan financing
while a dealership has a "no money down" offer, but you should
be aware that the interest rate terms might be much higher.
Length of Payment Terms
Until recently the longest term for car loan financing was sixty
months. Today dealers have started to offer extended payments
plans of seventy-two and eighty-four months. This has caused
consumers to purchase more expensive vehicles, cars that would
generally be out of their price range.
While you may dream of buying a $40,000 dollar SUV, it is
probably not a good idea unless you can pay for it within a five
year time frame. Remember that once the warranty period is over,
you are responsible for all repairs. People who finance their
cars over a seven-year period often end up owing more on the car
than it is actually worth.
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