Car loans can intimidate and confuse because there’s a lot that’s involved in them. We’ll try and simplify them so you can get the best deal for your car.
If you’ve been exploring loan options, you may have noticed that you could get a loan from a bank, credit union, online lender, and even a car dealership. It’s always a good idea to explore your options and ensure that whenever you take out a loan, you only do so once you have all the necessary paperwork. Here are a few things that are important to know about your auto loan.
- Annual Percentage Rate (APR): Each auto loan option has a different APR. This is what you will pay to borrow money, including interest and fees. It is presented as a yearly percentage, and the lower it is, the better it is for you.
- Loan term: This is the number of months or years you will be making your monthly payments. Ideally, you want your loan term not to exceed 36 – 48 months. The longer it is, the more interest you will pay.
- Monthly payment: This amount includes the principal, interest, and any other fees that you will pay each month to your lender.
- Principal: This is the amount you are borrowing minus any fees, penalties, interest, and other costs.
- Secured or unsecured: Usually, auto loans are secured loans. This means that the loan is backed by collateral, which is usually the vehicle. The lender can repossess the vehicle if you are unable to repay the loan. Secured loans are good because their costs are typically lower.
- Total cost: This is the overall interest and principal you will pay over the duration of your car loan. Ignore the price sticker on the car.
Once you have your loan, you need to ensure that you make your payments in full and on time each month. If you set up autopay to have funds deducted from your account automatically, some credit unions and banks may even offer a small discount on any interest that you pay. Even if you don’t set up autopay, ensure that you make all your payments on time. Missing a payment will hurt your credit score, and once the penalties start mounting, the amount can get very scary very fast.