Automobile loan has become mainstream in the fast-paced world. Buying a favorite car is no longer a dream for masses as lenders are offering loans to people more than ever before.
However, many people fall into sales trap, as various dealers tend to sell a broad range of products along with a car including extended warranties, fabric protectors, rust protectors, and various unwanted products. In addition, signing up on a loan plan without knowing its details may end up in paying more interest.
We have created this guide to reveal the essential tips to consider when applying for a car loan:
Keep Emotions Aside When Making Decision
Interestingly, buying a car is an emotional process. Once a customer takes a favorite car to test drive, it will be difficult to forget the driving experience and whiff of the interior smell. It may stop them from leaving, making the dealers unwilling to negotiate any further. Thus, customers should be prepared to walk away.
Always remember that dealers are not doing a favor. They are just selling a car, and customers are spending their hard-earned cash on it. Customers should keep in mind that feelings can make them suck with a bad auto loan that they may regret in the upcoming years.
Say No to Extras
Sales persons may try to convince customers to buy every additional option along with a car. They will suggest buying gap insurance, extended warranty, rustproof coating, and security alarm. Although some of these items may be useful, but dealers will charge ridiculously expensive markup for them.
Various dealers tend to earn profits by ripping customers off on such extra products. Having said, a customer can get same product from aftermarket providers. Moreover, rustproof solutions are not necessary for modern automobiles as they come coated. The Gap insurance can be purchased from various credit unions at reduced price.
Stay Away from Higher Interest Plans
Credit rating plays a key role in determining the amount of interest. Having a mediocre or low credit score does not mean a customer should accept a loan with ridiculously high interest rate. Many people with good credit score receive loan with single digit APR.
Whereas customers with average credit score often receive loan at about 10 to 12 percent interest. On the other hand, individuals with bad credit get loan with an interest rate of about 24 percent. A customer should not apply for a loan with elevated interest rates. It does not matter if a customer has good or bad credit; it is not worthy to pay too much interest rate just to own a desired car.
It may sound easy, but negotiation is one of the rare skills that not everyone possess. A borrower should know about the most common trick that sales persons use i.e. asking, “How much can you pay in a month?”
In essence, sales representatives tend to negotiate monthly payments opposed to actual price of an automobile. It is due to fact that they want to set price depending on the highest monthly payment customers can make. If they fall into this trick, then they will end up paying too much for a car. Having said, customers should negotiate the car price rather than monthly payments.
Opt for Short Loan Term
Today, dealers have come up with impressive financing plans that inspire borrowers to pay lowest monthly payments at a cost of paying for a longer duration i.e. number of years. Borrowers can finance a car for up to 7 years. However, a car keeps on depreciating with passage of time, and thus the best loan term will be 4 years or less. Customers should not choose loan plan for more than 60 months, else they will pay too much.
Learn About Credit Score
A customer should make sure to check and track credit report before looking to get an auto loan. Surprisingly, unlike mortgage or credit card, a customer can get a car loan even if they have poor credit score, by paying too much interest. This is due to fact that banks can easily recover a car in case of defaulter.
If a person happens to have bad credit, then they should not settle to get a loan at highest interest. They can use some credit tools to understand more about credit score. Once they know credit score, they can discover if they qualify for best car loan plans. Many times, dealerships advertise good credit interest rates on the new cars of about 2.9 to 1.9 percent. However, these interest rates are available to buyers with best credit scores of about 750 or more.
Fortunately, buyers with low credit scores of about 700 can also apply for a loan with low interest rate apart from promotions. Under 700 credit score, interest rate rises rapidly. Customers with credit score of under 650 may be provided with car loan at rate of 10 percent or more.
The less credit score a person has, more important it is to explore and ensure that they get the best interest rate from a bank. A customer may end up in paying more than people with good credit score, but they should never be ready to pay the first rate that anyone offers.
By considering the above-mentioned tips, customers will be able to get a car loan at lowest interest rate and save a hefty amount of money while driving their favorite car.