Auto Loans: Test Drive the Financing Part 1

Tuesday, January 06 at 10:50 AM
Category: Personal Finance
This is the first part in a two-part series on auto loans.
 
For most consumers, an auto loan is their biggest monthly expense after their mortgage or rent payment. That's why, when you're thinking about buying a car, it's as important to research the loan as it is to check out sales prices and gas mileage. Here are some strategies to consider before going to the dealership.
 
Review your credit reports from each of the three major credit bureaus long before you apply for a loan. Something as simple as fixing mistakes in your report — for example, correcting erroneous information that indicates you made late payments when you always paid on time — may qualify you for a smaller down payment or a lower interest rate.
 
Under federal law, consumers are entitled to a free credit report every 12 months from each of the three major bureaus — Equifax, Experian and TransUnion. Since the information can vary significantly among those three companies, obtain copies from all three. To order your free copies, go to www.AnnualCreditReport.com* or call toll-free (877) 322-8228. 
 
Think carefully about how much you can afford to pay for a car. Your monthly payment will depend on the term (length) of your loan, the interest rate and the amount you borrow. In most cases, what you borrow will be the price you pay for the car plus any options you select minus your down payment and the value of any trade-in. In addition, consider the charges for car insurance, property and sales taxes, as well as registration, inspection and title fees.
 
An alternative to buying a car is leasing one for a few years. Monthly lease payments can be lower than monthly loan payments, but at the end of the lease you won’t own the car. And if you need a car just once in a while, consider using a service that rents for periods as short as an hour.
 
Shop for a loan at your bank and several other lenders. Find out about the types of loans and the Annual Percentage Rate (APR) for which you qualify. The APR is a required disclosure showing the total cost of the loan, including interest charges and many fees, expressed as a yearly rate. 
 
Consider getting “pre-qualified” by a bank or credit union for a specific loan amount. “This doesn’t mean you have been approved for a loan,” explained Joni Creamean, chief of the FDIC’s Consumer Response Center. “But it will help you know approximately how much you can afford to spend on a car and how much it will cost you in finance charges before you get to the dealership.”
 
If you are trading in a vehicle, research how much your car is worth. “The more you know about the car’s current value before you go into the dealership, the more likely you will be to get a good deal on the trade-in,” said Heather Gratton, an FDIC senior financial analyst. 
 
With a little homework before visiting the dealership you can set-up your financing for a smooth ride. For additional information about car buying, check out our Pinterest board, “Buying a Set of Wheels.”*
 
Information courtesy of FDIC Consumer News.*
 
Links marked with * go to a third-party site not operated or endorsed by Arvest Bank, an FDIC-insured institution.

Blog edited by blog admin on 2/27/15.

Tags: Financial Education
Mike Lintro on 2/11/2015 at 7:16 PM

I can see how it would be a good idea to review your credit from multiple credit bureaus. You want to have a good credit, so that you can get a good car. It would suck to buy an older car, just to have it break down on you in a few months. Then you would have a loan to pay off, but no working car. I guess if there are just a few parts you need, you could just buy them, and fix it yourself to save some money. 

Comment edited by blog admin to remove third-party link.

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