Buying a car is exciting. Many people look forward to getting a car because a car isn't just about utility, it is also like a toy. So many people who are buying a car for the first time wonder how to get the financing, since most people choose to get a loan to pay for it. Here are some things that you need to know about getting a auto loan.
1. The Interest Rate Depends On Your Credit Score
One of the first things you should know is that your interest rate will depend on what your credit score is. How much you get in the loan will depend on your debt to income ratio. For instance, you wont be able to finance an expensive car if you don't make enough money. So they will first ask how much you make, and the more you make, the more the bank will loan you. But after they determine how much they will loan you, they will pull your credit score. The better the score, the better the interest rate, and if you have pretty low score, you may not even get the loan at all.
This is why banks offer great interest rates on auto loans, but you are unable to get the great rate. You have to have above a certain amount to get that interest rate.
2. The Life Of The Loan Will Depend On How New The Car Is
Another thing that many people don't realize is that the life of the loan will correlate with how new the car is. Anyone can get a loan for 3 years, that is pretty standard, but if you want to extend the loan say 5-7 years, you will need to have a newer car. This is because the bank knows that the cars depreciate in value. So if you are financing an older car for 7 years, there is a good chance that after 4-5 years, you will be paying more on the car than what it is worth.
This is why when you apply for a loan they will ask you for the year and the make and model. This will tell them if the car will still be worth what you are paying on it in the years to come. If it won't be worth it, they won't loan it to you for that long of a time.
By understanding these things you can get the right auto loan for your needs.
Share18 October 2017
One thing I have always been good with is money. Even in high school, I always had a savings from my allowance and from working for the neighbors. I created this blog to help other young people understand the importance of financial responsibility even at a young age. If we start our adult lives knowing about financial responsibility, we can make it further in our lives before we suffer from the devastation of financial mistakes that can take years and years to pay back. Hopefully, what you learn here will help you avoid those financial mistakes and maybe help you recover from the ones you've already made.