One of the best pieces of financial advice people can receive when building their credit score is quite simple: borrow money that you’re sure you can eventually return. This makes it especially important when negotiating an auto loan.
Responsible selection and payment of an auto loan can go a long way in boosting your credit score, making it easier to acquire larger assets over time. The wise selection and diligent payment of an auto loan can pay dividends later on in your life, but there are several factors at play upon making your decision.
APR
The Annual Percentage Rate (APR) is one of the primary factors to consider when negotiating a loan for your vehicle. This can be easily overlooked by inexperienced buyers, but it can add up to thousands of dollars over the life of the loan. Don’t mistake a low down payment as a blessing, as some dealerships might charge high-interest rates that will raise your monthly payment on the automobile. Some dealerships, banks, and credit unions can offer low-interest rates for buyers who are willing to do their research. Customers should always look beyond the money they are spending immediately upon driving off from a dealership.
Loan Terms
The loan term deals with how long the buyer is scheduled to make payments for. This is calculated by negotiating the percentage rate coupled with the down payment the buyer places on the car. All of these terms generally work in symphony, where a lower down payment will often mean a higher interest rate and/or loan term. These conditions will often vary around the buyer’s credit score and the vehicle being negotiated upon, but most auto loans in the United States are scheduled between 60 to 84 months of payments with the most common contract coming in at 72 months for a new car.
Down Payment
The down payment is what most people think of when they purchase a car, how much money they have to hand over to have the keys in their hands. Currently, most automotive loans require just under 12% of a new car’s value at the time of purchase. It might seem tempting to minimize this cost, but this is ultimately a short-sighted decision on the buyer’s part. A reduction in down payment often comes at an increase in the interest rate. As discussed previously, this can add up over time. Car buyers should be going into an auto loan looking to put as much money as they can responsibly spend down to reduce both the loan term/interest rate.
Auto loans are not wildly complicated business transactions, but they should always be entered with a layer of caution. Informed buyers can often save themselves thousands of dollars in the long term by making calculated decisions. Young or financially illiterate customers will often neglect to look past