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Tips for Better Auto Loans

Buying a new or used vehicle is an exciting event but when auto loans need to be secured for funding, it becomes a serious transaction. Although the basis of a car loan is easy to understand, people are unaware of things that could save them frustration, as well as money. With a few guidelines and tips, the process of finding great auto loans becomes easier.

  • Long-Term Loans - Commonly, a person buying a new car from a dealership would be offered a variety of terms, one being loan duration. While it might seem tempting, people looking at auto loans should avoid locking into an 84-month term. While this would reduce the amount of money paid out each month, it would also mean at the maturity of the loan, the individual paid thousands of dollars more than with a 60-month or less loan.
  • Internet Lending - Typically, people turn to their bank, credit union, or some other lender for conventional loans. However, auto loans through an online provider are another option that would provide convenience and often, better rates. Obviously, the key would be for the borrower to work with a reputable lender but with an honest online lender, chances are the interest rate would be lower and terms better.
  • Improve Credit - For someone with poor credit, auto loans are available, those designed specifically for people that would have a difficult time securing a traditional loan. While the borrower would likely pay a higher interest rate, as long as payments were made on time, the lender would report positive feedback to the credit bureaus, boosting the personís overall FICO score.
  • Leasing versus Buying - When shopping for auto loans it would be important for a person to know his or her current credit score and understand debt to income ratio. As an example, if the individual would be looking at a loan that exceeds 10% to 12% of the monthly net pay, leasing a vehicle might be more economically sound than buying.
  • Understand Auto Loans - Unfortunately, many consumers simply follow what they are told by lenders without actually understanding the numbers that make the loan. People need to have a better understanding as to what they are paying for, which includes interest rate, financing charges, administration fees, etc. Doing a little bit of research could ultimately save the person significant money.
  • Fine Print - Auto loans are unique, no matter the lender or how many cars the individual had purchased in the past. Therefore, the fine print on the contract should be read, word by word. The small print often comes back to haunt the buyer in that fees or terms were carefully hidden.
  • Multiple Lenders - Typically, people looking at auto loans start with their bank or credit union and while this would likely result in the lowest interest and best terms, it is important for people to consider all lenders to get the best deal possible.
  • Penalties - A common mistake that people make is not asking the lender of auto loans if there were any type of penalty for early payoff. Sometimes, lenders lock people into a contract that has to remain open until the maturity date. When a person pays a loan off early, he or she saves a lot of money but because of this, some lenders will tack on a hefty penalty to recover what they would have made if the loan had gone to full term.
  • Make and Model - Most people have an idea as to the make and model of vehicle they want to buy, they people need to be realistic by choosing something that would coordinate with needs but also a vehicle that would be easy to get a loan for and possible manufacturer incentive.
  • Insurance - Finally, while sports cars are fun to drive, they also increase a personís insurance. Therefore, when shopping around for auto loans on sporty vehicles, the individual should first talk to their insurance agent to determine how a car such as this would affect the insurance rate.
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