Auto Loans
Your first full-time job or career is often the sign of things to come. You are presumably out of your parents’ home and living life on your own. No longer are you dependent on others for funds, insurance, or food - although frequent trips home for laundry and home cooking are not necessarily a bad thing. The prevailing symbol of your new financial freedom, at least for many young people, is a new car. And with that car, comes your first auto loan.
Understanding Auto Loans
There are two financing options when buying a car. Leasing is essentially renting a car for a specified number of years and miles. Buying a vehicle using an auto loan sets up a payment plan to purchase the vehicle after a certain number of payments. Both are legitimate means to a new vehicle, but only one can offer you the sense of pride in ownership.
Auto Loans
Auto loans offer you the opportunity to purchase a vehicle in monthly installments. The loans generally come in terms of 24, 36, 48 or 60 months. Some loans even extend to 72 months, but as the length of the loan increases, so does the interest rate. Of course, extending a loan lowers the monthly payments, but with higher interest rates you end up paying more over time for the same vehicle.
So when you are considering a loan, consider your long term financial situation and what is best in the big picture rather than buying a car because it will fit into your monthly budget. Unless a dealer has a special on financing with an absurdly low interest rate, the shorter a loan term, the better an auto loan as interest rates can become steep after 36 or 48 month terms. It is far better to buy a less luxurious car and save tens of thousands of dollars in interest charges than to max out your monthly budget on a dream vehicle you can barely afford to insure, much less drive.
Tips for Auto Loans
When you’re ready to buy your first car and sign off on an auto loan, consider the following:
Negotiate everything. With the exception of taxes, there is little that is set with auto loans. Negotiate the price of the car, fees, down payments, terms, and interest rate with the dealer. Squeeze out as many savings as possible up front.
Read everything. Double check to be sure the dealer didn’t change anything on the paperwork after you negotiated your deal. Be on the lookout for hidden fees or inflated costs for various extras such as GAP insurance or extended warranties.
Pay extra. Once you have your deal arranged, don’t be afraid to pay on the principle of the loan when you are flush. The more you pay on the principle, the less you pay overall, and the faster you own your vehicle.
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