Auto Loan Financing Made Easy

Auto loan financing doesn't have to be a bad experience. In fact, when armed with the right information about auto loan financing, you can strengthen relationships with local lenders, position yourself well to negotiate on your vehicle and feel confident that you have made your best deal.

Choosing a Lender

There are two basic choices for auto loan financing. You can borrow from a lending institution such as a bank or credit union or you can borrow from the car dealer of your choice. Each has advantages.

  • Auto Dealers - Using your auto dealer for auto loan financing offers the benefit of one-stop shopping. The dealer can pre-qualify you so that you know how much car you can afford. Depending on the make or model you want and other factors such as if that model might be discontinued soon, the dealer may have incentives such as low interest rate auto loan financing.
  • Banks or Credit Unions - Typically, banks and credit unions are the better alternative for auto loan financing. They have the ability to offer competitive rates and still work with your credit history. If you have a relationship with a local bank or credit union, this can also work in your favor.
Know the Amount You Can Afford

Before committing to auto loan financing, it is vital you know how much loan you can afford. A bank or credit union representative will be glad to help you figure this out.

Plus, there are many online calculators that you can use to input your:

  • preferred amount of money down
  • cost of the vehicle
  • length of the loan
  • interest rate
With this information the calculator will develop a monthly payment amount. Most calculators work from any point of the equation. For example, by entering your preferred monthly payment, loan length, down payment and interest rate, you can determine the amount you will be borrowing.

Typically, your monthly car expense, including insurance, gas and maintenance, should be about 20 percent of your disposable income.

Document Your Income and Credit History

When you know how much you are comfortable borrowing with auto loan financing and which lender you would like to use, have your documentation ready before starting the process. Verify three years of income. Know your credit score. Being prepared will make the process of obtaining auto loan financing move faster and easier and build confidence in you by the lender.

Get The Best Rate

Every loan carries with it an APR, or annual percentage rate. This is the interest cost of your loan. If you are allowing multiple lenders to compete for your business, APR give you an "apples to apples" comparison. Be aware, you must know if there are any fees hidden in the loan documentation that makes the auto loan financing more expensive.

Know the Terms of Your Loan

Because of the information in the "Get The Best Rate" section above, before signing your name to anything be certain you understand the terms of your loan. In general, your car loan should not be longer than five years. Look out for fees or charges that you don't understand. Auto dealers, even though they might be offering low interest rates, can recoup some of this by adding fees or services that you might not want.


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