New Car Loans

New car loans can be obtained through lending institutions such as banks, credit unions or car dealers. Traditionally, consumers had to visit the locations of these institutions to apply for new car loans, but in the age of the Internet, the application process can usually be completed online. With new car loans come many of the same concerns as loans in general--interest rates, down payments and monthly payments.

Getting a new car loan is an essential step in buying a new car. Most people cannot just pay for a car in full with cash or a check. Because of this, you make a down payment, and then the rest is paid via a loan. You pay the loan off over a period of time, usually between 3 and 6 years (or 36 to 72 months).

You can get new car loans from 1 of 2 places. One is the dealership. This may be the easiest way, because you can do it all in one go when you buy the car. However, it is likely the more expensive option. The reason is called the "dealer reserve," which is an added percentage to the interest rate, which you won't know about. It can raise your rate a couple of percentage points. This can mean hundreds or even a couple of thousand extra in interest over the period of the loan. The other option is a private lender, where you will likely get a better rate. The higher your credit score, the better your loan rates will be. You can always refinance your loan down the road if you increase your credit score over time.

What Will You Need?
You need to show the bank or dealership proof of residence in at least 2 or 3 forms. In addition, you will give your social security number, and fill out a form for background and credit checks. They also will want proof of earnings, so you will need to fill out paper work about that as well. Depending on if you have a bad credit score, you may need a co-signer who has better credit. Bad credit can make you pay higher interest rates, so if you know you have a bad or lower credit score, bring a co-signer with you when you go to get the loan.

Credit Report
Now would be a good time to acquire your credit report. It's common knowledge that the interest rate will be determined by your capacity and capability to pay. Fix any errors on your credit report and clean up any existing debts to get a better chance of acquiring low interest rates.

Get Pre-Approved

If you get pre-approved, that shows your dealer you are a person to be trusted, and it gives you an advantage toward getting a lower APR.

What Type of Loan?
You should always ask for a "locked" loan, which means that your payments will not change at all. This includes your interest rates. Of course, the balloon loans may sound tempting, due to the fact that they start out at a lower rate, but they rise over time. The interest is high on those types of loans as well, which is one reason why your payments sky rocket.

How Long Will It Be?
The length of your loan term will vary, depending on how much the loan was for, and how much your month rates are. Find an online loan calculator that can give you an estimate on what your loan may end up being like. Typically, auto loans last for between 36 to 72 months (or 3 to 6 years).

How Much Down Payment?
The best answer to this question is nearly always "as much as possible." The reasons for this are twofold. The higher your down payment, the lower payments you will have. Second, if you don't put enough down, you could end up upside down on your loan, or owing more than your car is worth, an ugly situation to be in.

You should put down at least 20 percent of the cost of the vehicle. This means that you have paid for the depreciation for the first year that you own the vehicle, meaning you are not upside down on your purchase. This down payment will help when you attempt to get an auto loan. Less than this may increase your interest rate or payments, potentially costing you thousands of dollars. In nearly every scenario you are better off saving up for an extra month or two to get to 20 percent than buying you car right away, and paying for it later.

Be wary of 0 percent interest offers and low monthly schemes. A 20 to 30 percent down payment is adequate, and a 36 month term is preferred over 60 month terms.

Study the Loan Agreements
Carefully study the loan agreement of your choice and look for hidden charges or other fees associated with the new car loan. This is critical because other fees are also an added expense that you will have to pay. Any related fees should be considered because this will eventually add up to your monthly payments.

Use Home Equity
One way to save money with an auto loan for a new car is to tap into your home equity. A home equity line of credit loan will cost you must less in interest charges, because the loan is secured against your home rather than a vehicle. By doing this you are pre-approved, and you'll pay less a month.

Smart Fuel Auto Interest Rates
Because of their long term benefits to the environment and their marketability, smart fuel autos often have lower interest rates than standard vehicles. However, this is based upon the supply of the cars and the demand. If there are very few smart fuel autos in your area and a lot of people who want them, interest rates may be higher than they otherwise would be.

New Car Loan Calculator: How to Calculate Your Payments

A new car loan calculator is a valuable tool. Looking at the bottom line is one thing, but the monthly car payment can take many people by surprise. Knowing how to calculate new car loan payments will help you avoid the surprise.

Know the Bottom Line
Before you can calculate how much your car payment is going to be, you need to know the bottom line on the actual loan. If a car is priced at $20,000, the loan will not always be for that amount. You have to take in to account your down payment, trade-in and additional dealer fees and taxes.

Determine the Terms
The length of the loan will play a huge role in determining what your monthly payments will be. For example, a $20,000 loan with a 7 percent interest rate over 3 years will be $617.54 a month. The same car with the same interest over 4 years drops the payment down to $478.92.

Online Loan Calculators
The most accurate way to find what your payment will be is to use a loan calculator. For this you need the bottom line of the loan, the number of months you are paying and what the interest rate is. This tool will give you an accurate result. Many of these calculators will give you a reverse option. This is good if you have a set amount you can afford each month. Enter this amount and what kind of credit you have, and the tool will give you average interest rates and the most you can afford on the bottom line.

Used Auto Loan Rates vs. New Car Rates: Auto Financing

If you've been trying to decide between whether to buy a new car or a used car, you may have discovered that used auto loan rates are somewhat higher than loan rates for new cars. There are several fairly complex reasons for the differences.

Used Car Risks
The most obvious reason for used car loans having a higher interest rate is the potential risk to the bank in financing a used car. Used cars break down and fail more often than brand-new cars. This may seem like an oversimplification of the issue, but it is accurate.

When you purchase a car or truck, whether new or used, you do so with the expectation you will be able to use the vehicle for however long you might need it. But used vehicles don't always function as we expect them to, and sometimes can be very expensive to fix or repair. Banks know that people are less likely to make payments on a vehicle that cannot be driven. So, this creates added risk and exposure to potential loss, for the bank.

Used Car Loan Terms
For this very reason, most banks not only charge a higher interest rate on used car loans--they also limit terms for loans on used cars or trucks. While you can get a new car loan with a term as long as 84 months, the majority of used car loans have a maximum term of 48 months. Again, this is because of the fact that used cars break down more often than new cars.

When determining interest rates for loans, most banks weigh the profit potential for the amount of money lent out, versus the amount of collectible interest. After all, banks are in business to earn a profit. In fact, 10 or 15 years ago it was very difficult to get a used car loan with a term longer than 24 months. Banks have become a lot more lenient in that regard.

Apply now for a New Car Loan Quote or find an article below for more information.