According to a 2016 report released by the Federal Reserve Bank, only 34% of vehicles in 2015 were purchased with cash; individuals financed the remaining 66%. In 2017, Automotive News reported vehicle loans in the United States reached a record high, with borrowers owing $1.1 trillion, and CNBC said the average loan exceeded $30,000 per borrower.
Taking on so much debt for an item that loses value quickly, borrowers must find the best loan terms to save money. When car shopping, selecting a loan can be confusing. These eight tips will help you choose the best loan for your finances.
1. Talk Interest Rates and Loan Fees - Ask your lender about interest rates to determine what they offer and how the rates are structured (new vs. used, etc.). Also ask about any loan fees that may be in place.
2. Find a Lender You Like - The human factor in the loan process is often overlooked. Working with a lender you like is really important. Your loan term could last over five years. You want a lender who communicates well and who will work with you during unexpected financial circumstances.
3. Determine Your Budget - If you do not have a monthly budget, now is the time to make one. This helps you determine how much car you can comfortably afford and prevents you from overspending at the dealership.
4. Explore Loan Terms - With a budget, you can use our online car loan calculator to determine what loan terms will work best for you.
5. Flexible Financing - Find a lender who has flexible repayment terms, so you can pay the loan back on a feasible schedule (monthly, weekly, bi-weekly or with automatic payments).
6. Choose the Shortest Term You Can Afford - The shorter the repayment term, the higher the payment and also, usually, the lower the interest rate. Selecting a loan with the shortest term you can afford will save you money over the life of the loan.
7. Read Before Signing - Never blindly sign your loan documents. Ask your lender or loan closer to go over the loan documents with you and follow along, making sure everything included in the loan agreement matches the terms (interest rate, fees, payment amount, repayment schedule, collateral and loan amount) you discussed with your lender.
8. Don't Let a Denial Discourage You - Finally, do not be discouraged by a loan denial. Lenders deny loans for lots of reasons including poor credit history, a lack of credit history, not enough down payment or too high of a payment. Receiving an adverse action notice (denial) could save you from taking out a loan you truly cannot afford, and sometimes it is the first step in getting a vehicle financed. Read the notice and talk with your lender to find out what steps you can take to get your loan approved.
Download our free eBook - Absolutely Everything You Need to Know About a Car Loan!
At America's Credit Union, our lenders look forward to helping you through the process of obtaining financing and purchasing a new vehicle to fit both your lifestyle and your budget. Contact us today to choose a credit union auto loan that's right for you.
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