Key Terms to Understand When Applying for Your First Car Loan
Getting your first car can be an amazing experience. Finally, you have something of your own that you can enjoy driving each and every day. However, don’t let the excitement get the best of you. It’s important to understand the following key terms when applying for a car loan.
Term Length
One of the most important things to understand about your car loan is the term length.
You don’t want to settle for a car loan that will have you making payments for 10 or more years.
In fact, most individuals opt for a car loan that is between three and five years in length.
Don’t fall for the lower monthly payment that will be dragged out for well over this time period. You’ll be paying a ton of interest before you’re done.
Interest Rate
The interest rate of your loan is a big key term you need to be aware of.
This rate determines just how much you’ll be paying the lender in fees for borrowing the money.
Typical auto loans come with an interest rate between two and five percent.
Those with excellent credit can usually get rates in the low twos.
Those who don’t have great credit or who simply have a lack in credit history may find themselves getting rates in the fours and fives.
Monthly Payment Amount
On the basis of any smart auto loan is an affordable monthly payment amount.
It’s vital that you understand just what you can afford to pay each month for your new car.
You should opt for a loan that is within that range to ensure that you can comfortably handle the payment.
Most car loans are set up in a fixed installment agreement. This means you make the same monthly payment for the life of the loan.
Fixed vs. Variable
Most car loans that you’ll find will come with a fixed interest rate. However, it’s also important to touch on the ones that come with a variable interest rate. This interest rate may seem cheaper at first.
However, realize that it fluctuates with the market. Your interest rate could be two percent for the first year.
But, you may find the market rate went up and your interest is now at five percent during the second year.
In most cases, it’s best to avoid a variable interest rate as it can alter your monthly payment amount and how much you repay in interest on your auto loan.
Hopefully, you now have a better idea of some of the terms you’ll need to be looking for when filling out your car loan paperwork.
It’s vital to realize that just because you want a specific car doesn’t mean you should settle for the first financing you can find.
Instead, you should opt for finding terms that fit your individual needs.
Category: Loans
