Low Auto Loans: Reviewing the Tradeoffs Before You Sign

Financing vehicles takes up a significant portion of many Americans' budgets, so finding low auto loans is important. If you are trying to find the best auto loan for your checkbook, take a few things into consideration before making the final decision.

Interest Rates

Is that unbelievably low interest rate the deal-maker it seems like? Maybe not. First of all, why is it so low? If it is an introductory rate, then it is likely to increase significantly after the introductory period is over. If the interest hinges on monthly rates that you can't afford (especially after your budget is further consumed by car insurance and maintenance costs that will accompany your vehicle), then it may be a ploy that uses early repayment penalty fees to make refinancing a hassle for you and profitable for the lender. Make sure that you understand the terms of any lower interest rate loan and uncover any hidden fees associated with that low rate.

Loan Terms

Long-term auto loans boast impressively low monthly payments, but those payments add up to a much larger sum by the time the loan is paid off than shorter term loans. Not only can you get a lower interest rate on shorter-term loans, but the amount of money on which you pay interest shrinks faster. Ultimately, larger monthly payments may save you quite a bit of cash if there are no early payment penalties attached to the loan.


If you have found a low auto loan after comparing five or six good quotes, you still have to make sure that the car and the loan are truly affordable for you. First of all, will you be able to properly insure your car while paying off the loan? Will an unexpected change in finances immediately impact your ability to pay off the loan? If you are stretching your wallet to pay off a loan, even a loan with a great rate, then it is probably not worth it.

Car Value vs Loan Value

When taking out an auto loan, the possibility exists that the car will be irrevocably damaged or destroyed before you have finished paying off the loan. Since insurance companies will only pay a claim holder the value of the destroyed car and not of the loan that the consumer took out to pay for the car, the difference becomes the consumer's immediate debt. Suddenly, the unlucky driver needs both to buy a new car and still pay off the debt associated with the wrecked one. While this is always a tough situation to be in, you can avoid financial meltdown by making sure the total value of the loan is low enough that you could financially survive such a scenario.

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