Car Loan is a way to finance the purchase of a new or used vehicle. The main benefit of this type of financing is lower interest rates than personal loans or credit cards, and it can also help build your credit history. This is important because as your debt payments are reported to the credit bureaus, you’ll gradually improve your score over time.
The exact interest rate you’ll pay will depend on your credit history, income and whether you’re buying a new or used vehicle. Some lenders offer a range of different Car Loan rates, so it’s important to shop around to find the best deal. You can use NerdWallet’s auto loan calculator to get an estimate of your monthly payment and total cost based on the vehicle price, down payment, sales tax, fees and more.
You’ll also want to consider whether or not you want to buy additional protections like service contracts, credit insurance and extended warranties. These are extra expenses that can add up quickly, so make sure to factor them into your budget.
When you’re ready to start shopping, it’s important to have a clear idea of what you can afford. This will help you keep negotiations on track and avoid overspending. You can figure out your price range by checking your credit scores and reviewing your monthly budget. You may also want to speak with an auto loan specialist at your bank or a credit union. They can often provide a pre-approval letter, which will let you know exactly how much you can spend at the dealership.
Another important consideration is the length of your car loan term. The longer the term, the higher your monthly payments will be. On the other hand, if you can manage to pay it off early, you’ll save on the interest charges that are added over the life of the loan.
In addition to the principal and interest of your car loan, you’ll likely have to pay additional costs such as a down payment or trade-in value, sales tax and registration fees. You should also factor these into your budget when deciding how much you can afford for a car.
If you have poor credit, it’s a good idea to apply for a car loan with a cosigner or explore lender options that specialize in working with low-credit borrowers. You may also want to look into a lender’s auto refinance programs to see if they can help you save money on your car loan. You’ll typically pay a lower interest rate when you refinance, and you can even sometimes get cash back from the lender when doing so. You can also try to negotiate with the dealer or a private seller if you’re buying a used vehicle, which may help you reduce your overall costs.