Things You Should Know About Auto Loans In 2021
When it comes to car shopping, finding the right auto loan can be just as important as finding the right car.
It may not be as simple as just showing up at the dealership. You’ll want to shop around for an auto loan to see what type of financing is available to you in order to get the lowest rates possible. Dealerships often mark up the interest rates on lenders’ loan offers, which causes you to pay a bit more for the car.
The good news is that if you’re willing to shop around and get a pre-approved auto loan before you begin shopping at the dealership you will likely pay less. You’ll want to look at several different lenders to see what each will offer you to find the best rate. Once you start getting rate quotes you will have two weeks to collect all the quotes you want without multiple inquiries hurting your already bad credit score. Within that period, the credit reporting agencies count all those inquiries as one.
Getting pre-approval for an auto loan may give you better bargaining power. It will also give you peace of mind that you will have at the lowest possible interest rate. Keep in mind that your local small bank or credit union could also be a great place to get an auto loan once you start shopping. These institutions often offer lower interest rates for car loans than large banks but are usually limited to a relatively small geographical area.
The dealership that I’m shopping provides financing. Should I make use of it?
Auto dealerships can and will mark up interest rates on the car loans they find for you. While you might be eligible for a 6 percent interest rate from a bank, for example, you might see 6.5 percent or even 7 percent from a dealer.
You may be able to save by shopping around on your own if you’re willing to put in some effort. As you start car shopping, the best way to avoid this problem is to get pre-approved by several banks or lenders and take those pre-approvals with you to the dealership.
How long should the term of an auto loan be?
The longer the loan, the smaller the payment. That’s math. But paying for a car loan for more than 60 months will likely leave you owing more than your car is worth. Cars depreciate quickly. If you pay on an auto loan for more than 60 months you could end up “upside-down” or owing more than the value of the car. According to Experian data more and more buyers received loans with 72-month terms in Q3 2020, and it’s turning into a problem – for the buyer. Auto loan delinquencies tend to increase, too, as auto loans increase in length.
Getting a car loan with bad credit history? Here’s what you ought to know.
You could benefit by doing your research and shopping around for auto loans especially if you have a bad credit history. Avoid any financing for “buy here, pay
here” since these loans often come with unreasonably high rates of interest and high monthly payments, which could cause your payments to default.
If you have a bad credit score, a local credit union could be a good place to start. Lenders like these can sometimes be more forgiving and offer lower interest rates than big banks.