A car is the ultimate status symbol, letting the world know you’ve made it. But unless you’re pulling in Bill Gates money, you probably don’t have cash on hand to buy the kind of vehicle you truly desire.
That’s where an auto loan comes in, giving you the means to ride around in style without having to preemptively save the money. But do you really know what you’re getting yourself into with an auto loan? If you already signed on the dotted line, are you aware of the specifics of what you agreed to?
Read on to learn five things you probably don’t know – but should – about your auto loan.
Don’t Finance Your Car at the Dealership
It may be tempting to get your auto loan when you get your car, but you’ll usually find the best rates if you shop around. You can compare quotes easily online and receive competitive offers from various lenders, instead of taking what the car salesman offers you. There’s less pressure to get a loan online than in a salesman’s office.
Shop for a Loan Quickly
Every time you apply for a loan, your credit score can take a hit. That’s because inquiries from lenders ding your score, unless you keep your loan applications to a two-week timeline. That means that you need to have all your documents in order before applying for a loan. A lower credit score and too many recent inquiries can affect what kind of interest rate you’re offered.
Don’t Ask if You Can Afford the Monthly Payment
Instead of looking at your auto loan as a series of monthly payments, look at the loan total instead. Monthly payments can be decreased by increasing your loan term; you’ll end up paying more in interest overall. Instead of getting excited that you can finance a $30,000 car, see if you can only take out $20,000.
Put Down a Down Payment
Most people associate a down payment with a mortgage, but they can also help you get a better auto loan. Not only will you prove you’re a more cautious borrower, but you won’t have to borrow as much. Use the down payment to leverage a better interest rate and loan terms. Saving for a down payment will also help you get used to putting money away every month for your car.
Read the Contract
Once you’ve signed the contract, your loan is finalized. That’s why it’s important to be deliberate before you make any lasting decisions. Is there a prepayment penalty for paying your loan off early? Did you get a variable or fixed interest rate? What other fees are included? Are your interest fees pre-computed or simple?
Don’t be in such a rush to buy a car that you ignore warning signs or refuse to ask questions about loan terms you don’t understand. An auto loan can last as long as seven years, making it a mistake that could haunt you for years to come. Use this as an opportunity to test your auto-loan savvy and desire to be a well-informed consumer.
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