| A strong credit history puts you in a good position to negotiate for the most favorable auto credit loan terms. That said auto financing is available even for those with credit blemishes. A bad credit auto loan is a viable, but often expensive, option for high risk borrowers.
Options for car loans abound so there is no reason to limit yourself to dealer financing. You should also investigate car financing plans available from:
- Banks - Your local bank will have options available for an auto credit loan. Make sure you compare the car loan rates from various banks before signing with your local branch. It's possible that you can get a better rate at a competing bank.
- Credit Unions – Because these are non-profit entities that return profits to members via lower interest rates and fees, it is generally cheaper to borrow from a credit union.
- Internet based lenders – the entire application process happens via the Internet and borrowers never have to visit a building or meet with lenders. Loan funds are disbursed by check. Borrowers take that check to the dealer or private owner to purchase the car.
- Dealer financing is often the most expensive option, but there are exceptions so don’t discount any options as you do your research.
- Finally, don’t forget friends and family – You may be able to ask someone to co-sign your auto loan or even front you the money. Be creative, why not start an auto financing fund and ask everyone that would give you a present for birthdays, etc. to contribute to the fund instead.
Home equity loans offer attractive interest and tax incentives that make car financing a great deal. Borrowers considering this option should understand the associated risks (loan default or foreclosure) before taking a home equity loan.
Bankrate.com’s advice - know your numbers. There are many factors that contribute to your monthly payment and total cost of the loan. These include:
- Interest rate
- Sticker price
- Down payment – higher down payments may mean lower overall interest expense
- Rebates, incentives and fees
- Whether the auto credit loan is for a new or used vehicle – borrowers can usually expect shorter loan terms for used cars and longer terms/lower interest for new cars.
Car loans that extend to 60, 72 or even 84 months may make monthly payments more manageable, but borrowers run the risk of becoming “upside down,” or owing more on the loan than the car is worth. These loans pose another problem; they have significantly higher interest rates than loans with shorter terms. If you decide to trade the car in you will likely have to add the unpaid balance onto your new loan. Shorter loan terms and larger down payments help you pay off your auto loan more quickly. When you are ready to trade, the car will be a credit against your new car debt.
Final Auto Loan Financing Tips:
- Read all loan documents carefully.
- Understand everything before you sign anything.
- Know the total cost of the loan before you decide.
- Understand that your budget must be able to accommodate the car payment as well as associated maintenance and insurance expenses.
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