Advantages of Buying A Car with A Loan | Valley Auto Loans

Auto Loan Advantages

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Auto Loan Advantages

You’ve found the perfect car. So now you have to find the money to pay for it. Most people require some type of financing to be able to purchase a new or used car. Borrowing money can be a complicated process. There’s a lot of paperwork to fill out with a lot of legal and financial terminology. When you borrow money to pay for a car, it usually includes interest. The sum borrowed is referred to as the principle. The interest is a percentage of the loan that must be paid back in addition to the principle. You should also include tax, tag and insurance when calculating the cost of purchasing a car.

Where to Apply for Financing

There are a number of options available when financing your car. You’ll find that lenders offer a range of interest rates. When applying for a loan, you will need information such as your social security number, income and expenses, like mortgage and credit card debt. While shopping for the lowest interest rates will save you money in the long run, you should try to submit all of your loan applications as close together as possible. Submitting numerous applications for financing can lower your credit score. Experian allows a time frame of 14 days from the onset of shopping for a loan before multiple enquiries affect your credit score.

Banks and Credit Unions

Many people choose to go to a bank or credit union to finance their car. Depending on the state of the economy and your credit score, this may or may not be a good choice. In harsh economic climates banks tend to be less generous as they are trying to avoid risk. Many times applicants with less than perfect credit are unable qualify for a bank loan or the interest rates are so high that the payments are painful. If you have good credit, however, banks and credit unions usually have lower interest rates than other lenders. You’ll also find banks easier to work with if you have an established relationship with them or equity in your home. Banks and credit unions often have flexible terms that accommodate the borrower’s needs. They may provide shorter loan payment periods if you want to pay the car off early or longer ones if you need a lower loan payment. You should compare all of the available loan options offered by the as well as any penalties for late payment or early pay off.

Automobile Dealerships

Nearly all car dealerships have some type of financing program. If you opt for dealer financing, they will ask you to fill out a credit application. The dealership then submits the application to potential assignees such as banks or finance companies. These lenders evaluate the contract to determine if they are willing to purchase it at wholesale cost. You don’t deal with the financiers directly. The benefit of dealer financing is that they often offer rebates, special pricing or financing plans such as reduced APRs or cash back on certain models. Always make sure you understand the terms and conditions of dealer rebates and financing. Ask questions about anything that isn’t clear to you. The APR can be negotiated as well as the price. It is a good idea to have an approved loan prior to visiting the dealership. This gives you the upper hand in negotiations. It also prevents you from having a broken heart once you find the car of your dreams should the dealer be unable to provide financing.

Online Service Lenders

Online service lenders such as Valley Auto Loans can help you find the best auto loan rates available. Rather than submitting individual applications to every prospective lender, you can simply enter your information in a web form online. This can save you a lot of time. It also allows you to find available loan sources more quickly. Pre-approval for online auto loans usually takes only a matter of minutes, and you can apply right from home. You can typically find attractive rates with online service lenders since the market is fairly competitive. Most online service lenders do not require office buildings or a large number of employees. Therefore, they have lower operating costs and administrative expenses than traditional lenders and can pass these savings on to customers.

Buy Here, Pay Here Car Lots

Buy here, pay here car lots allow you to make arrangements for payment directly to the car dealer. This is referred to as in-house financing. They usually offer financing with low down payments. Car payments are typically small and made weekly. The biggest advantage of choosing a car at a buy here, pay here car lot is that they provide financing regardless of your credit score or past financial history. They allow the credit challenged an opportunity for financing when they have been turned down for a loan by traditional lenders. It also provides the opportunity to improve your credit rating. On the down side, interest rates are extremely high to compensate for the risk of unstable borrowers.

Qualifying for a Loan

The easiest way to qualify for an auto loan is to plan in advance. Check your credit prior to applying for a loan and if there are any mistakes, have the credit reporting agency remove them. Pay down any outstanding balances on credit cards and refrain from making future purchases. Your existing debt will count against you when applying for a loan. The type of car you are financing will also influence the lender’s decision. Stick with cars that are within your budget. In many cases, if the car payment adds to your additional living expenses to exceed more than 60 percent of your income, the lender will reject the loan application.

How Credit Affects an Auto Loan

Your credit score can have a large impact on whether you qualify for an auto loan as well as the interest rates. Nearly all lenders use the FICO score for credit rating. Your FICO is a number ranging between 300 and 850. There are a number of factors that influence your credit score including late payments, collections and bankruptcy. Lenders usually prefer FICO scores of 700 or better. This also allows you to get better interest rates. Having a lower credit score will not disqualify you from getting a loan but you’ll usually pay higher interest rates. In some instances, a lender may require you to have a co-signer to make up for credit deficiencies. The co-signer is equally responsible for the loan payments.

Assessing the Terms of the Loan

The terms of your auto loan can significantly affect how much you pay for your car. Lenders usually offer car loans that are paid off in 3 to 6 years. More recently, some have extended this to 8 years. The longer it takes to pay off the loan, the more interest you will pay. However, extending the length of the loan can lower the payment and allow you to afford a more expensive car. The length of the loan the lender offers is often determined by factors such as credit score and the amount of the down payment. To get an understanding of how your payments are broken down between principal and interest, look at the amortization table for the loan. You’ll usually find that the initial payments of the loan are paying mostly interest and very little principle.

State and Federal Lending Laws

You should be aware of state and federal laws that protect your rights as a borrower. The Equal Credit Opportunity Act forbids discrimination in credit related matters based on gender, race, marital status, religion, nationality or age. The Fair Credit Reporting Act allows you the right to obtain one free credit report each year from each of the three credit reporting bureaus. The Truth in Lending Act requires that creditors disclose all important terms of a credit contract before you sign the agreement. Each state has its own individual laws regarding lending practices as well.