Once you start earning probably the first target you set for yourself would be to buy a new car. If you have sufficient cash to finance your new car you are very lucky. However, most of the people around cannot get that lucky.
You have to decide which source of financing to opt for. You have a variety of options under the umbrellas of direct financing and dealership financing. Direct financing methods include obtaining auto loans from banks or credit unions.
Different kinds of financing available through dealership financing include captive finance companies, buy here pay here option, and dealer-arranged financing.
Auto Loan As A Means To Finance Your New Car:
Auto loans as provided by banks contribute as the biggest source of financing new cars. Car loans given by banks are secured against collateral which is the vehicle itself.
Banks secure themselves by marking a certain asset as collateral in case the debtor fails to pay back the loan; the asset is sold to pay off the debt. Here are some important things to consider when obtaining auto loan.
Read also: Your Credit Score And Auto Insurance Quotes
The Total Cost Of Loan:
The principal amount and interest make up the total cost of the loan.
Interest Rate To Be Paid:
Interest is charged on loans to account for the time value of money. Interest rate is the factor on the basis of which different banks compete against each other.
This is that part of vehicle’s price that is paid in cash before obtaining the loan. Usually the higher the down payment, the easier it gets to pay off the loan later on.
Other Important Terms And Conditions:
These include the time period of the loan, terms, insurance details, maintenance requirements and a lot more information.
These are the basis of negotiation for bankers to attract customers. It includes procedures to follow in special circumstances such as theft or accident.
How To Obtain New Car Auto Loan:
Determine Your Affordability:
Check your debt-to-income ratio and determine your affordability. Generally the amount of monthly debt must not exceed more than 36% of your gross monthly income.
A high debt-to-income ratio would make it very difficult to afford the loan unless your income increases or you start working two jobs at a time.
Find Your Credit Score:
Credit score helps lending institutions determine your credibility as a borrower. It is a very important factor to determine interest rate and other terms and conditions of the loan.
A good credit score means you are in a good position to bargain a lower interest rate and conditions that are in your favor. On the other hand, negotiation can be very difficult for those who have a poor credit score.
Analyze Different Auto Loans:
Now that you know your affordability and the rate you are most likely going to be offered, based on such information you can shop around for different loan offers.
Depending on the packages offered by different banks and your own preferences make your choice of loan.
Get Your Car Loan Approved:
Now that you have decided and made your choice, it is time to sign the papers and get your car loan approved.
You can get a co-signer such as either of your parents or spouse to help establish your credibility as a borrower.
Buy Your Car:
Ultimately you get all the money you needed to buy your dream car. Now you can walk confidently into the showroom of your favorite car brand and book your car. Make sure to get auto insurance before you hit the road in your new car.