There are three massive loans that most people take out in a lifetime. First, you have the home loan, and then the student loan (if you’re in the United States). Then, there’s the car loan, which you’ll end up going through multiple of in most cases throughout your life. Whether you’re heading into your first car loan or your seventh, here are five things you need to know before getting that loan.
1. Trading In
With each passing year, there are more and more people that are trading in their cars due to the ease of convenience. That’s because online companies that manage purchases, trade-ins, and sales have made the car-buying process hassle-free. If you currently have a car, no matter what type of condition it’s in, you’ll be able to trade it in.
Many people have switched to trading in their cars online, while there are still plenty that take their cars directly to the dealer. Of course, there are going to be varying prices for how much that you can get for your trade-in, but a good rule of thumb is to use the Kelly Blue Book to see what your car’s value is. From there, you can use your trade-in to make a big dent in your new car’s purchase price.
2. Down Payment
Trading in your car is the most common and convenient way to make a down payment on your new car instead of coming up with a large sum of cash. Naturally, the larger the down payment the better. It’s important to know how much you can afford for a down payment, and never spend more than you’re able to afford just to bring down your monthly payments by a dollar or two per month.
That’s one of the biggest mistakes that people make when entering into a car loan, as down payments don’t really make a big difference on the loan rates until you start talking increments that are several hundred dollars in most cases. Also, don’t take out another loan just to make a down payment on a car, because then you’re burying two holes.
3. Interest Rate
The absolute biggest thing that’s going to affect how much you pay for your new car is the interest rate. See what you’re approved for before you even start shopping, that way you know how much you can spend. If you’re receiving an offer for an incredibly low-interest rate, you may be able to get a better and newer car than you first expected.
To bring in new customers that clearly have good credit, a lot of dealerships will offer 0% APR or even a cash rebate. You’ll be able to shop around and see what kind of rebate you can get, and the higher rebates equal lower monthly payments. People with poor credit may still be able to afford monthly payments on high-interest rates, but the type of car they’ll be able to get will be much older or have higher mileage.
4. Loan Length
There are plenty of potential car owners that are able to afford a brand-new car every two or three years and can take on those shorter-term car loans while being able to keep up with the high monthly payments. If you’re one of those people that’s willing to commit to a vehicle for several years, though, you might want to take a longer loan.
This is especially true for lower-interest loans as the monthly payments overall will be incredibly low on a new vehicle. That will allow you to save your income for other expenditures rather than worrying about whether or not you can even afford the car in the first place. The typical car loan lasts for 60 months (five years).
5. Type of Car
Now that you have your interest rate, know how much you can trade-in and put down for a down payment, and figured out your monthly payments, it’s time to decide what type of car you want. Each person has different needs, and a lot depends on the climate, commute to work, and size of the family.
Take all of these into consideration, as you don’t want to buy a two-seater if you have several young children while a larger SUV is sitting there at the same price and mileage. Typically, people will know what they’re looking for before the process even begins.