4 Important Things to Consider When Getting a Car Loan

Posted by Mary Davis on Jun 27, 2012 in Blog, Financial Tips, Guide | 2 comments

photo provided by Oomni

Buying a car is a big purchase – whether it’s for work or play, new or used, your first car or your dream car. Members of the military often have access to special buying incentives, such as dealership discounts, preferred financing, and military loans, that can make the process of purchasing a car easier. However, it’s still important to do your homework and understand how the auto loan process works before heading to the dealership. If you’re considering purchasing a car, here are four important things to think about before you take that first test drive.

1. NEW OR USED?

Just about everyone prefers a new car to a used one. However, the average cost of a new car or truck is more than $30,000. If you can afford a shiny, new vehicle you get the luxury of not worrying about whether it’s been in an accident, the condition of the car, or how many miles it has on it. But if you’re like a lot of people and on a budget, used may be the way to go. With a previously owned vehicle, you may incur maintenance costs sooner than you would with a new one. But if you find a good used car in good shape with low mileage, it can be reliable, functional, and just as fun to drive as a younger model. Also, keep in mind, if your car does need a trip to the mechanic, Just Military Loans offers loans to cover the cost of a new radiator, carburetor, or other car repairs.

2. FINANCING OPTIONS.

Figuring out how you will pay for your new set of wheels is one of the biggest parts of getting a car. Unless you have a large chuck of change to plunk down and pay for the vehicle, you’ll probably need to finance the purchase with an auto loan. Most lenders and dealerships will work with you to find a loan, terms, and payment plan that fit your budget. If you have some money saved for the purchase, you may want to put a down payment on the vehicle to lower the amount of the loan. You can also trade in your current car and use the money towards the new vehicle.

3. CREDIT AND THE LOAN PROCESS.

Your credit has a big impact on whether you’ll be approved for an auto loan — or any loan for that matter — and the interest rate you’ll pay on the loan. Interest rates vary dramatically from 0% to more than 20% based on whether you have good credit (a credit score of 700 or higher), decent credit (a score of 699 to 620) or bad credit (a score below 619). Try to be aware of your own credit score and use it to estimate how much your payments will be.  This will be important when you figure out what your budget will look like.

4. LOAN TERMS AND PAYMENT PLANS.

When buying a car, it’s important to select a loan term and payment plan that you can afford. Sure, it’s tempting to go for the nicer, more expensive model when you’re sitting in the dealership, but are you going to be able to make those $500 monthly payments once you leave? Before you head to the dealership, make sure you sit down and examine your finances and budget to determine how much you can pay each month. Your total debt payments, including your car payment, each month should be 36% or less of your total income. As mentioned earlier, most lenders will work with you to find a payment plan — whether its a three, five, or seven-year term. A longer term means a lower monthly payment, but it also means you’ll pay more in interest over the duration of the loan.

Financing a car can seem like a stressful and complicated process. However, if you do your research, crunch the numbers, and understand the process before you get to the dealership, you can drive a new (or used!) car off the lot without the headaches!

Did you recently take out a car loan for your new or used vehicle? Did you get your auto loan through Just Military Loans? Tell us about your car financing experience!