Auto Loan Basics

Cars are a necessary part of today's world. Whether it's just to run errands, go to work, school, or any of the other things we need to do in our daily lives, it's hard to do without a dependable way to get from point A to point B. If you have looked at the price of cars these days, you know these are not items you can purchase outright unless you have a very large bank account. For most people, an automobile loan is necessary to pay for this type of major purchase. But, how much do you really know about car loans?

If you are thinking that car loans are like home loans, you're only partially right. There are a few differences. First, home loans usually require a decent portion of the total price as a down payment on the purchase. When it comes to car loans, getting 90- to 100 percent financing is very common. When making a car purchase, that means you will not have to put as much money down on the front side of the purchase and you will instead be able to finance more of the purchase price.

While the idea of paying back a car loan over time is great, you may still be wondering if you can budget a purchase of over $20,000 even if it is over a few years. The key in this case may be to look at your options on the duration of the payback. Many financing companies offer terms of from two- to seven years. However, in many cases, the longer the term of financing, the higher the interest rate the loan will have, so you'll need to compare the differences in monthly payments of various rate/term combinations. Another important detail to keep in mind is that interest rates are sometimes negotiable. When you are first sorting through your loan options, if you are not comfortable with the rates being offered, check to see if the financial institutions are willing to be flexible on any of them.

If you have bad credit, however, you may have a tough time getting a car loan, and negotiating interest rates will likely be out of the question. But, many dealerships and lending institutions now offer 'second-chance' vehicle financing. The interest rate you pay will be higher, but the terms of qualification are much more lenient, and most people with at least a decent job can get an approval.

Another important thing to keep in mind is your budget. Many people walk into a car dealership and fall in love with a vehicle. The sales person promises to help them get great financing and they follow along almost blindly, signing on the line, just hoping to get the car they desire. Don't go about your purchase this way. Make sure you can handle the deal you are getting into, or you may well lose the car and your credit reputation. The key is to pursue your best deal knowledgeably, intelligently and carefully.