How to Understand Car Loans

Author: Julie Davidson

Buying a new car can be an exhilarating experience, until you try to get a car loan. There are so many fees, interest choices and time lengths that one can get discouraged and decide not to get a new vehicle all together, but if you spend some time learning the mysteries behind car loans you will find it's a very easily understood topic. Below are some useful tips to help you understand the ins and outs of car loans.

How much can I borrow?

In most cases, a car loan company will allow you to borrow as much as you need to finance the cost of the car and cover any fees, loan insurance and comprehensive vehicle insurance.

Most vehicle loan institutions mandate a minimum of $10,000 to be borrowed over varying amounts of time. You may or may not be expected to pay a deposit on the loan. Most car loans are available for used or new cars, purchased privately or for a business as long as they are less than seven years old.

Consider Interest

There are two main kinds of interest rates when considering a vehicle loan: fixed interest or variable interest rates.

Fixed interest:

A fixed interest rate means that the rate stays consistent for the duration of the car loan. So if you lock in to a 10% interest rate you'll know exactly how much money you'll pay for the life of the loan. If you are on a tight budget then a fixed interest rate would be the right choice for you, as you can rest easy knowing how much you will pay each month.

Variable interest:

A variable interest rate means that the rate can change and fluctuate with the market during the life of the loan. So if you take the loan out at the above 10%, your rate may stay the same, rise or drop many times within the loan's life.

If interest rates are high to begin with and the rates drop then a variable interest rate will mean lower payments each month, resulting in a tidy savings. However, if the market tanks and interest rates rise, you could be looking at paying much, much more a month than you anticipated.

Secured vs. Unsecured

There are two main types of car loans you can apply for: secured or unsecured. Each have definite advantages and disadvantages, so make sure you read the details carefully so you know what you're getting into.

Secured loan:

These are car loans that take something into consideration as collateral against your loan debt in the event that you default on your payments. In this case, your car will be used as collateral.

If you don't pay your loan the company has the right to repossess your car and sell it to regain the money you borrowed. The advantage for you is that a secured loan is often offered at a lower interest rate because the risk of the bank or institution not getting their money is lower than when they lend money in an unsecured loan.

Unsecured loan:

An unsecured car loan is one that doesn't use the car as collateral. This type of loan is offered at a higher interest rate but if you default on the loan the company can't repossess your car. If you're buying an older car you may need to obtain an unsecured loan, since the car value may not be enough to serve as collateral.

Loan Insurance

If you're unsure of what your employment status will be two years down the road, or if you know you'll need surgery in the next year then loan insurance might be a good option to look into. Some car loan lenders will offer a discount on your interest rate if you procure loan insurance. Loan insurance protects you if you're disabled, or lose your employment.

Consider time into the equation

Your car loan will have different options on the length of time to pay the loan back. Typically varying from 12 months to 5 years (some companies offer six years or longer), the amount of time you choose to pay your loan back is important in many ways.

The longer you take to pay back your car loan the more interest you will pay over the life of the loan. Longer amounts of time usually result in a lower monthly payment, but an overall higher interest rate. If you go for a monthly payment you will have larger payments, but you'll end up paying less interest.

So 'No' to Fees

Banks and loan institutions don't make money on just the interest rate of your car loan these days. They add in some other fees to make sure you keep paying and paying, even if you want to pay the loan early. When you're in need of a car loan ensure that you investigate the following fees and look for a loan that will give you as low a fee as possible.

Application fees:

Some banks and car loan companies will charge an application fee. This covers the work done researching your information and processing your loan. If you can, find a loan with a low or even better, no application fee.

Service fees:

Some banks will charge you a small, monthly fee for the length of your loan. Although an extra $3 a month or more may not seem like much, it can certainly add up over the years. For example, paying a $3 a month service fee on your car loan for a period of 7 years adds up to an additional $252 in fees.

Cash vs. electronic payment:

Some banks encourage electronic payment of car loans by issuing a fee if you choose to get a cash payment booklet instead. In this case, it might be in your best interest to waive the $100 or so fee and go electronic.

Early payment fees:

Paying your loan off early may seem like an attractive idea at first until you read the fine print and learn that you'll probably pay a fee for doing just that. Banks and loan companies don't want to lose money on the interest you pay them every month, and if you pay early that's exactly what will happen. To ensure they get a piece of their share they institute a fee for paying your car loan off early.

In Conclusion

Now that you know the differences in interest rates and what fees you might be charged if you're not paying attention, along with lots of other handy tips, you can rest easy when applying for that car loan. You will get out of the car loan office and behind the driver's wheel that much quicker.

Article Source: articlesbase

About the Author:

Now you know about car loans--now you're ready to start searching for one! Whenever you're in Australia and need a car loan, look at Start Local first. Start Local is Australia's premier local search engine and business directory.

Car Loan Tips. Stretching Your Car Loan To 7 Years Is A Bad Idea


I recently read a newspaper article that car loans are stretching to 7 years and longer. Why is this? Because most car shoppers want to get into the car they want and have a monthly payment in their budget. The dealer knows you are a payment buyer and will do anything to sell you that car.

When you walk onto the car dealers lot the salesperson after making small talk will ask, what type of monthly payment are you looking for. In view of the fact that most car shoppers are payment oriented the salesperson needs a number to work with. He will never discuss the actual selling price of the car because that does not allow him to work the payment numbers in his favor. When he comes back with the payment you agree on, check the length of the loan. If you need a 6+ year loan to get the payment you need, you are probably getting in over your head. A lot of things can happen in six years, marriage, children, divorce, job transfers, layoffs, promotions, injuries. Try to purchase something that allows 2-4 years on the loan. DO NOT TEST DRIVE VEHICLES YOU CAN'T AFFORD AND THEN STRETCH OUT THE LOAN TERM SO YOU CAN! Stretching out the years will lower the payment but it will cost you more over the long run. You are buying a car not a house, so 3-4 years later when you are ready for another vehicle you will still owe 2-3 more years on your 4 year old vehicle. Scary thought, isn't it? Look at it this way. After the third or fourth year you may want to trade it in for another car and still owe more on it than it is worth.

Here is the reality. Cars depreciate fast, usually about half their price in three years. If you take out a 2-4 year loan and trade it in after 3-4 years you probably have a little equity in your car for a down payment on another one. If you are buried in a 6-8 year loan you still owe a lot more than it is worth and must roll the balance into a new loan and you now have no equity in your new car. According to the Power Information Network a unit of J.D. Powers and Associates, nearly 82 percent of car loans made in 2007 were 5-6.5 years. That is quite a large number of people buried in their car. If you are one of the very few people that will actually keep your car that long you still must consider the excess interest you will pay over the course of the loan.

Here are some numbers.

A loan for 25,000 dollars at 6 percent over 48 months will cost you 28,176 dollars. The same loan stretched out to 84 months will cost you 30,660 dollars. The payment went from 587 dollars to 306 dollars, but it cost you more over the long haul.

If you are upside-down in your car meaning you owe more on it than it is worth, be careful. The options are simple; try to sell it yourself and avoid the wholesale price at the dealer. To do this you must have cash available to pay off the lien. Or you can put a larger down payment on your new car to offset the imbalance. Another way is to look for large cash rebates that can offset the purchase price of your new car. If none of the above will work you should consider keeping the car longer until the negative balance disappears. If you allow the dealer to pay off your loan and put the negative equity on the selling price of your new car you will be even further upside down on your new car and the next time you buy it will be worse. Whenever a dealer advertises that he will pay off your loan no matter what you owe, he will but you will pay the difference. Don't be fooled into thinking he is doing you a big favor. To avoid being upside down on a new car purchase you should always try to put at least 20 percent down.

It is plan and simple! Do not get sucked into a long term car loan to keep your payment low. When the dealer brings you the loan papers at the payment you want, check the length of the loan. If it is higher than 48 months don’t sign it. When the dealer asks you what payment you are looking for, tell him the number, but also tell him you do not want a loan over 48 months. Focus on the selling price of the vehicle and if it is too high, consider a less expensive new car or a slightly used car that fits your budget. Another option is to increase your down payment on the vehicle to bring the payment down. Do not sign that 6+ year loan because you will regret it. You can find tons of information about car buying and car loans at carbuyinghelponline.com

About the Author: Jeffrey Taylor is a car buying consultant and author of CarBuyingHelpOnline.com He has been giving advice on car buying tips for 11 years. Visit his website carbuyinghelponline.com to avoid getting ripped off on your next new or used car purchase.

Source: www.isnare.com

A Previously Owned Luxury Car Can Be A Dream Come True

By Terje Ellingsen

To many car interested people, the thought of buying a pre owned luxury car is out of the question. But for those of us who may not have the capital to purchase a brand new luxury car, a pre owned vehicle is the only option available. And when it comes to the wish of owning a luxury car, purchasing it secondhand may not be a bad decision. The question you should ask yourself before laying down a huge down payment on a secondhand luxury car is whether it is worth the investment.

How Do you Find a Proper Pre Owned Luxury Car

Whatever the reason be for you to purchase a pre owned luxury car, in order to obtain the best deal, you will have to know what features to look for and how to check the condition of the vehicle before you sign on the dotted line. It is amazingly easy to get impressed by the way the car dealer presents the car. In many cases the car is indeed a good deal, because a secondhand luxury car will be sought by a higher-end consumer who has sophisticated taste and knows what they want to buy.

Nevertheless, there is a lot of scope for painful surprises unless you make sure these are eliminated before you agree to the deal. In order to find out whether you are getting a great deal or not, you will need to have the car checked out by a trusted mechanic. Some vehicle dealers allow this check and some do not. However, it will be good for you to have the automobile thoroughly inspected before the sale.

Make Sure Know Your Car Well

Even before you go to the dealership or order your car online, you should have a fair idea of which features you are looking for in the pre owned luxury car of your choice. In order to be able to judge whether or not you are getting a great deal, you will need to have a considerable knowledge about the features of the vehicle and what you should expect to get in the model you choose.

Many of us car buyers accept what is offered only to find out later that there could have been a better deal negotiated. If you have the slightest doubt, then allow an auto technical person to accompany you when you choose the car. He or she will be in a better position to ask the right questions as well as evaluate the answers.

If you take the necessary precautions there is no need why you should not get a wonderful deal when you buy a pre owned luxury car.

Terry Bolton is an internet publisher of automotive stuff. Read his useful and popular articles about getting used car loans with low interest rates and how to get car repair help online

Article Source: http://EzineArticles.com/?expert=Terje_Ellingsen

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