Today’s auto loans are much like modern cars: complicated, with tons of hidden parts. However, more people know how to maintain cars than finance them. People are very dependent on their loans and their vehicles, and that dependency may lead some to be “taken for a ride” if they’re not well-informed. Just as there are basic things to know when shopping for a vehicle, there are important factors to consider when financing one as well.
The Size of the Down Payment
While many buyers are lured in by no-money-down claims, these loans aren’t always in a driver’s best interest. Saving up for a sizable down payment will result in long-term savings because the buyer pays interest on a lesser loan. And, because a new car depreciates as soon as it’s driven off the lot, if one makes no down payment, they will owe more than the vehicle is worth for quite some time. That means if the vehicle is stolen or totaled, the insurance settlement may be insufficient to pay off the loan.
Auto loan terms are steadily getting longer. This may seem good because it brings lower monthly payments, but it drives up interest as well. Buyers should be wary of long used car loans, because a used vehicle typically has a shorter useful lifespan. After all, a loan that outlives the vehicle does no good!
Auto loan interest rates vary widely, and it’s important to compare lenders before accepting an offer. Furthermore, rates are usually higher on longer-term loans, which is another reason to go with a short-term loan.
The Real Price of Payment Deferment
Most buyers have seen deals with no payments for several months, but they come with a price. Odds are, the terms on these loans ensure that interest accrues for the entire deferment period. Because the principal won’t be paid down at first, that means an additional half-year of interest payments on the entire loan balance.
Surely, shopping for a new car is more exciting than choosing a loan. However, both are choices one has to live with for several years, and as such, buyers should put research and time into choosing a loan, just as they would when choosing their next vehicle. Visit Consumer Portfolio Services for more auto loan information.