When you find yourself in the market for a new vehicle, there are many decisions to be made. It’s exciting to choose which type of vehicle, the options, and the color but there are a host of critical questions you need to answer before you can get the car you want. This includes things like how much you can afford to spend and whether leasing or loaning a car makes the most sense for you financially.
This is where some people get stuck, but with the right information, you can make this decision with confidence. If you are wondering whether an auto loan will be right for you, we are here to help. Here are a few things to consider before you get an auto loan.
Lease vs Loan
Understanding the difference between a lease and a loan is your first step in deciding what you’ll do. It all depends on your situation and what your goals are. Leasing may be your best option if you want to drive a specific vehicle but don’t want to commit to buying it outright. There are a host of other reasons you may want to lease, like if you don’t qualify for financing a car or don’t have enough for a larger down payment to purchase a car. Or you may find that having the best new technology features is most important to you, so swapping leases on an annual basis will work best for you. Maybe you just don’t want to deal with the maintenance and repair costs required with owning an older car. Although leasing a car may not seem like the obvious choice to some, it can suit different types of needs. So, make sure to consider what your goals are when thinking about leasing or getting a loan.
Getting a loan will be the best choice for you if your goal is to buy and fully own your vehicle. You may want to buy an older car so you can have a lower monthly payment, instead of leasing a much newer car. If you want to reduce the total cost of ownership of your car, buying it is the way to go. And since not everyone has the full amount of money available to spend on their car all at once, an auto loan is the ideal plan of action. Getting a loan from a dealership or a bank ensures that you can have the vehicle in your possession and be paying it off per the loan terms you agree on. When you have it completely paid off, it’s 100% yours. However, if you fail to pay it off or miss a payment, you could have your car repossessed, which is why it’s important to continue reading the advice in this blog. The most important thing will be to make sure you choose the best option for financial situation. Read on to learn what you need to consider when it comes to getting an auto loan.
What to consider
If you’re looking into getting an auto loan, it can very easily get overwhelming. Just like there are many decisions to make, there are also many questions to ask yourself. What auto loan can I qualify for? What credit score do I need? What’s the best interest rate I can get? What amount do I need a loan for? How long should the loan term be? This is where the overwhelm starts to set in.
Instead of letting the questions stress you out, choose a trustworthy source to get your questions answered and gain some clarity. Visiting your local bank and having someone talk you through your options is the way to go. If you’re in central Illinois, come see us at Hickory Point Bank and we will be happy to provide you with the information you need to make this decision.
Auto Dealer vs Bank
After you have considered your situation and thoroughly researched your options, you may conclude that getting an auto loan from a bank is the best choice. If you still find yourself stuck between the dealer and a bank, there are a few ways a bank could be the better of the two.
Unlike at a car dealership, a bank is more interested in providing a loan you can afford and pay off than pressuring you into buying a car. If you default on a loan to a car dealership, the dealer will re-possess and re-sell your car. Your local bank is most interested in giving you a loan you can be reasonably expected to pay back in full. If you come to your local bank to get an auto loan, you’ll be able to get personalized advice without the expectation that you’ll be buying a car, relieving sales pressure you might experience at a dealership.
What to consider when you talk to a loan officer:
- Your credit score and credit history
- The ideal monthly payment you want to be making
- How long you want to be paying the car off for
- The loans the car dealership is offering
- The loans your local bank is offering
- The down payment you are prepared to make
It will be useful to keep all of this in mind when you go to talk to your local bank. There are also tools that can be useful in addition to speaking with a loan officer, like an auto loan calculator. Hickory Point Bank has an excellent resource page with an auto loan calculator that will help you figure what your monthly payment should be, or what purchase price you can afford.
Loan Details
It’s important to understand the different aspects of an auto loan so you can choose the right one. One aspect is the type of interest rate: fixed or variable. With a fixed interest rate, the interest rate will stay the same throughout the loan term. A variable interest rate may fluctuate throughout the loan term, depending on changes in economic conditions. Fixed interest loans tend to be preferred, since the rate is predictable and constant.
Another aspect of the loan is the annual percentage rate, or APR. It’s the percentage of interest paid on the loan, including any other fees (like brokerage fees) you pay the lender. It will be essential to make sure you’re getting the APR and loan term that you can reasonably afford. Loan terms are measured in twelve-month increments, and common ones are anywhere from 24 to 72 months.
Although choosing a longer loan term will make your monthly payments smaller, you also must remember that you’ll be paying more interest throughout that period of time. For example, your car’s price is $40,000 and you want to pay a 20% down payment ($8,000). You want to pay the car off sooner than later so your loan term is 24 months, and your credit score is fairly good so say your interest rate will be 4.2%. This means your monthly payment for the next two years will be $1,392.59. When you and your loan officer are discussing this, you’ll be able to see your options and adjust the aspects of the loan until you find something manageable.
Here at Hickory Point Bank, we know how overwhelming buying a car can be. That’s why we aim to give our customers the right information to help in their decision process.
If you’re considering getting an auto loan, check out our auto loan page for more information and apply today! Or come into one of our local branches for the best personal service in central Illinois.