Getting the best car loan involves maximizing your credit score and weighing all of your options.
The Top Line
- Finding the right car loan is a process that involves weighing all of your options carefully to find the right one.
- One of the most important factors in the terms and approval of your car loan is your credit. You should carefully monitor your credit to ensure you put yourself in a favorable situation.
- It is generally better and more affordable to get a car loan that is for a shorter term, rather than get locked into a long-term loan that will accrue thousands of dollars in interest.
- It’s important that you avoid dealerships and sellers that engage in shady business practices and financing scams.
Car loans are one of the most common types of loans. As the loans that finance our ability to transport ourselves, they have become a very essential part of the financial lives of millions of people worldwide and across the country. However, not all car loans are created the same, just as not all car loan borrowers are created equally.
Without the right guidance and knowledge, you could easily find yourself being taken advantage of when it comes to borrowing for a vehicle loan. If you want to prevent that from happening and ensure you find the right partner for your car loan, then this guide to the top five tips on car loans will be a welcome bit of help.
In this guide to the top five tips on car loans, we’ll walk you through some of the most time-tested and best tips out there for getting a car loan that is suitable for your needs and preventing car loan companies from taking advantage of you.
Check Your Credit Report
The first thing that you should do and arguably the most important thing to do in order to lay a good foundation for obtaining a car loan is to check your credit report. Your credit report is an essential component of the entire process because it helps to tell a story of your borrowing history and in many cases, your level of fiscal responsibility. And you can bet that it's a story that your lender will want to read!
It’s no secret that a good credit score is oftentimes required to get a car loan or a better deal on a car loan. However, many people are left wondering what they are able to do about it. If you want to know how to help your car lending process through your credit report, then you’re not alone. As it turns out, there are a few different steps that you can take if you want to improve your situation when it comes to your credit report.
The first step is obviously to check your credit report often so that you can be informed when there are changes. You'll want to know when new items appear and when other items fall off. Any steps that you can take to immediately improve your credit report will help you in the car loan process. This can include things like paying overdue accounts, closing collection accounts by paying, and disputing any inaccuracies in the report. See the article on Building Credit 101 for more tips.
A good credit report not only helps you get approved for a car loan but also ensures that you get the best rate possible for you. This can save you thousands of dollars over the life of the loan.
Always Weigh Your Options
Many people don’t bother to investigate, but there are thousands of banks in the country that are willing to give out car loans. However, they can’t read your mind. You’ll oftentimes have to go looking for them. Sometimes the option that doesn’t immediately present itself turns out to be the best. When it comes to car loans, it’s very important that you take the time to weigh your options.
The characteristics that you'll want to look for are reputation, affordability, interest rate, flexibility, and the amount offered. When you weigh more options, you are more likely to find a lending partner that fits your needs and can provide you with a loan that will be affordable, effective, and sufficient for your car loan.
Shorter the Term, the Better
Generally speaking, the shorter the term that you can get for your car loan, the better situation you will find yourself in. That is because although the payment may be higher because you will be paying off the loan in a shorter period of time, the interest that you end up paying will end up being lower. This is a great thing and makes your car more affordable in the end.
However, we recognize that this isn't always possible. Sometimes, you may need to take a longer term so that you can afford the payments. However, you shouldn't take lower payments on a more expensive car that you can't afford a shorter-term loan for. This can lead to exorbitant amounts of interest being paid and lead to an abusive lending situation.
If you are able to, you should always take the shorter term. This will make your vehicle more affordable and ensure that you don’t get stuck making payments on a car that will take a long time to pay off.
Avoid Financing Scams
One thing that you need to be sure to watch out for when getting your car loan is common financing scams and gimmicks that are designed to ensure that you pay more money for your vehicle. Luckily, there are some time-tested methods that you can use to avoid these and ensure you don’t pay more for your vehicle than you originally thought.
Most of the time, these gimmicks happen at dealerships. Dealerships will give you your vehicle before final financing goes through and then claim that there was an issue. Oftentimes, this will result in your having to accept a higher interest rate. This scam can cost you thousands of dollars over the course of the loan and it’s something that you should absolutely push back on. A great way to avoid this is to refuse to take the vehicle until final approval for financing comes through.
Low Monthly Payment Doesn’t Always Equal A Good Price
Many people are fooled into thinking that just because they have been able to achieve a low monthly payment with their car loan, that means that they got a good, affordable price. However, this isn't nearly true. A low monthly payment might be more affordable on a monthly basis, but you will inevitably end up spending thousands of more dollars over the term of the loan if you take a lower monthly payment.
Because the interest will accrue over a longer period, the amount that you pay will be drastically increased. If you want to have the most affordable car loan possible, you should actually take a shorter term and higher monthly payments, as long as you can afford them.