If you want to learn how to get the best car loan. you should take an hour out of your day and spend some time performing some online research. It could be an hour that will repay you with hundreds of dollars in savings.
In the aftermath of the global financial crisis many lenders and finance companies withdrew from the market leaving borrowers with little choice. As the credit market begins to thaw however, there is an increase in competitiveness beginning to emerge again and is now possible to find some really competitive deals.
If you know what you are looking for the choice can be an easy one but for the unwary borrower there are still traps and pitfalls that can cost you hundreds, maybe thousands, of dollars.
Let’s take a look at some of the things to look out for.
- Interest rates do not tell the full story. It is important to remember that the interest rate quoted by a lender is not necessarily a good way to compare loans. This is because there are other fees attached to car loans that must be factored into your calculations. Take the following example. A $15,000 car loan over four years at an interest rate of 11% will cost $384.16 per month. If you add on the application fee of $150 and the monthly service fee charged at $5 per month, the total repayments made over the four years comes to $18,829.75. However, the same loan at an interest rate of 11.5% with no application fees or ongoing charges will cost a total of $18,605.78. A seemingly more expensive loan is actually $223.97 cheaper!
- Some loans can also attract an early repayment fee. This means that if you come into some money and are in a position to pay the loan out before the loan term expires you may be charged a fee. Sometimes this fee can be hundreds of dollars and can certainly leave you with a sour taste in your mouth. If you think you might be in a position to be able to pay the loan out sooner than expected, make sure you take into account the earlier payment fees which may apply. What you should be looking for is flexibility that allows you to make extra payments without penalty.
- Car loans that are provided at car dealerships may be an easy option given the ease with which finance can be obtained at the time you are purchasing your vehicle. But when you think about it, the dealership is acting on behalf of a finance company and will be paid a commission for arranging the finance. This commission is passed on to you as the consumer which means that you will be paying for the convenience. It is a much better idea to obtain a preapproval before you even enter the dealership and use this as a negotiating tool to get a better price on the car you want.
These simple steps should convince you to obtain a preapproved car finance before you start negotiating the final price for your vehicle.