The decision to get a new car can be exciting and fun, whether it is your first car or your third. However, from researching the best models in the market to deciding on the color, this process requires you to invest significant time and effort. With such a barrage of decisions to make, it’s not surprising that deciding on the most suitable option to finance your car purchase can get overwhelming.
One of the most common types of auto finance are car loans, which aid in conveniently funding your car purchase, while the slew of offerings on the market can help you get the best deals if you take the time to research your options. It is therefore extremely important to understand the different factors and issues that can be encountered when attempting to get a car loan:
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1. Note the loan term
Today, most companies offer long terms on car loans. While this means you might enjoy a lower monthly premium payment, the longer term may also mean a higher interest expense overall. For used cars that have a shorter lifespan, it is better to stick with a shorter loan term; it is not pleasant to continue paying premiums for a car that has already died.
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2. Check on the interest rate
The interest rates for car loans will vary from one company to another. This makes it essential to compare the interest rates from different lenders before settling for the most ideal offer. Also, note that interest rates are higher for loans that have a longer term period. Choosing a shorter term is more likely to get you lower interest rates.
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3. Credit score
Your credit history or score is a common factor considered by lenders when sanctioning a car loan. In some cases, the loan rate can be fixed based on the credit score of the borrower. So, if you have a high credit score, you are more likely to enjoy easy loan approval with lower interest rates. Make sure you check your credit score in advance so you are prepared for the bank’s verdict.
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4. Penalties and fees
It is crucial to take note of any fees or penalties that are attached to the car loan. Process fees are common among banks and lenders when facilitating the application process and sanctioning the loan. Some lenders maintain flat charges, whereas others charge a percentage on the total amount of the loan. The fees can vary, so it is important to be aware of standard fees for your loan and for your lender, so you can determine if the lender’s quote is fair.
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5. Early repayment fees
Ahead of signing up for a car loan, note that many lenders levy fees in the case of early loan repayment. This can increase the cost of the car, especially if you are trading it in for a better model. Make sure that you read this fine print before undertaking a car loan.
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6. Pick between a direct or indirect lender
A car loan can be acquired directly through a financial lender or indirectly from a car dealer. While it is more convenient to have the car dealer arrange for your car financing, they may have financial incentives or associated mark-ups. This can, in turn, increase your car loan cost. It is best to settle for a car loan from the dealer only after comparing the offering with independent financing organizations.
