If you are in the market to buy a new or used car, you'll more than likely need auto financing. Corey Blake from New Horizons Credit Union joins us on Studio10 with some tips.
What are a few things we need to consider when financing a car?
I think the first thing to consider is, is financing right for you? Odds are that you do, not too
many people have the cash to pay upfront for a car.
The Interest Rate
Your credit score dictates the interest rate you will pay on your car loan. If you have a higher
credit score you will be eligible for a lower interest rate. Having a co-signer with strong credit
will also assist in getting approved for automobile financing. Younger people usually have lower
credit scores than older people, due to lack of credit history, so they are usually charged a
higher interest rate.
The Life of the Loan
The life of the loan refers to the amount of time until you own the car. Usually, a shorter loan
term involves a lower interest rate but higher payments. While you make payments, the
financier of your loan still has title to your car – in essence, you don't actually own the car until
you have finished paying off the loan. After the last payment is made the title is transferred. This
is why missed loan payments can result in the loan holder repossessing the car.
It is possible to find a lower interest rate for the same car from different lenders. Make sure to
apply for financing with multiple financial institutions in order to receive the lowest possible
interest rate. While dealership financing is convenient it may not offer you the best deal. A bank
or an online financial institution might be a better option. Note also, that new cars tend to have
lower interest rates than used cars, and the state in which you take out the loan may affect the
interest rate of the loan.
Are there different options in auto financing?
Yes, depending on where you are purchasing. Pre-approval at local credit union or bank before car shopping will help you determine up front how much you can afford. Some people use home equity loans to pay for a car. I think this is a bad idea, you run the risk of losing both your car and your house if you default on the loan.
Is it a good idea to check your credit first before applying for financing?
Absolutely, your credit will have a significant impact on your ability to get a loan, and even the
amount of the loan you qualify for. The better your credit, the more likely you'll get a larger loan
with a lower interest rate.
Do you have any other tips?
Shop around for the best rate, terms and requirements. Don't get too excited about that new car and get the "Got to have it" syndrome… it may cost you more in the end.
New Horizons Credit Union
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