Financing a car is a big financial undertaking. The money involved is seldom insignificant and the terms of the loan can have huge impacts on one’s financial future. Learning how to compare auto loans before signing loan paperwork is one of the best ways to make the transaction beneficial for the borrower.
A good starting point is with the interest rate. Lower interest rates are generally available to those with the best credit ratings. You may have to suffer higher interest rates for a while if you have bad credit. The good news is that you can often renegotiate your interest after having paid your bills on time for a certain period. Make sure your loan offers this kind of flexibility.
Some unscrupulous lenders will depend on their clients not investigating the terms of the loan fully. While a loan may offer low rates, these rates may be subject to instant change by the lender. Compare auto loans based on the adjustability of the rate. You don’t want to expect to pay a certain percentage and then find out that your interest has been greatly increased by the lender for some arbitrary reason. Read the paperwork thoroughly.
Fees are another huge expense that many people overlook when they compare auto loans. Sometimes, these fees can be high enough to be the equivalent of a couple more points in interest. If there seem to be a lot of fees that exist for no good reason, pass on the loan and wait for something better. This is particularly true of fees required up front or administrative fees. It may be worth it to work on your credit for a few months rather than getting yourself into a bad financial situation that could last years.
You should also compare auto loans based on the repayment terms. Some auto loans will advertise that there is no money down and no payment required for a certain amount of months. If you take such a loan, commit yourself to paying the interest every month, no matter if it’s required that you do so or not. This interest is always accruing and will add to the total amount of the loan. If you don’t pay it off, the luxury of not paying for a few months could be easily negated by having to pay a higher monthly amount at the end of the grace period.
Most importantly, compare auto loans based on how they can improve your credit. Lenders aren’t doing you a favor by extending you credit: They’re trying to make a profit. You can profit, too, by making sure you take a loan that will enable you to establish good financial standing.