Car Finance: Loans

The secret to getting a good auto loan is understanding car finance loans. This know-how applies to the tricks of the trade and the language lenders use to finance auto loans. This knowledge is useful to you because it helps to decode their language and give you some insight in what to listen for and how to prepare when you seek financing from a lender.

You should be in control of your credit file when asking for financing. The credit file and the score provided by the reporting bureaus is the objective measure used to determine rates. Those with high scores in the 700s are going to get far better rates than those individuals in the mid to upper 600s. You should periodically check your credit report and dispute any item that appears in your file erroneously.

Two incentives that lenders offer are low APR or cash back incentives. APR or annual percentage rate, is a simple interest annualized rate of the stated rate which is the loan's coupon rate. The APR is typically higher than the stated rate for the loan. Dropping this by a few points may be significant over a longer period. You may also find that the cash back offer results in an overall lower loan cost. You can understand which offer is best for you by requesting a simple side-by-side comparison of the two offers be done.

It is important to know where your loan originates and whether or not it can be sold to another lender without your knowledge. One of the problems that occurred in the real estate mortgage market with sub-prime loans was the packaging of loans by a lender to be sold to a distant third party. This packaging and repackaging took place many times, obscuring the identity of the origination source.

Avoid buying a lot of extras. Many of the standard features on cars today are more than sufficient to meet your driving needs. Spending a lot of extra money on extras such as windshield protection or locking wheel covers may sound necessary but in many cases it will increase your bill and the amount of finance charges you will end up paying. For example, you may do as well buying an alarm system from a specialty store versus having one installed by the dealer.

Warranties are another area that relates to your bottom line costs. A standard warranty should cover a period up to 50,000 or 100,000 miles and provide basic coverage for the engine, transmission and drive train. Some may even go so far as to provide free checkups and oil changes for the life of vehicle. Purchasing additional protection, like some of the extras, only increases your total loan cost and does not necessarily provide more protection for your vehicle.

Understanding these tips and tricks will help lower your costs and help keep you from making expensive mistakes.