How to Get an Auto Loan Without Having Your Skin Ripped Off

If you desire to obtain a vehicle loan without getting your skin ripped off, then read on because I’m going to tell you precisely how to obtain a car loan the appropriate way. Financing an automobile is a big deal because if you do not do it properly, you’re going to lose a lot of money and possibly end up going upside down in your vehicle.

I am illustrating this with one of my personal experiences in this field: I bought my initial vehicle when I was twenty years old, and I was so dumb because I obtained a $20,000 loan for 7 years at seventeen percent interest rate. Please don’t do what I did. I didn’t do any research and took really bad advice from my friends on how to grow my credit.

Most of us know that bad advice will always lead to really silly decisions.

The 3 Parts of Funding an Auto

I’ll start by stating that financing a car is primarily broken into three different parts, but you need to understand how these different components work to avoid getting screwed as a consumer. We will be taking a look at the amount borrowed, the interest rate, and the length of the loan. These three different numbers will determine what you can or cannot afford as a monthly car payment. So focus and remember that a monthly payment does not determine what you can actually afford until you apply what I’m discussing.

Amount Borrowed

This will be your whole auto purchase, plus any kind of taxes and fees, and any cash left from a previous auto loan. Make sure to do the research on the car that you’re buying so that you can get the best deal possible. Simply remember to get the best rate possible on your car purchase and feel free to watch my car purchasing negotiation video if you need help in this area.

Interest Rate

As far as the interest rate goes, this is simply the amount of money that you need to repay to the bank to also have your auto loan. To get the best interest rates, you need to have superb credit or a cosigner with excellent credit. If you are using a cosigner, make sure that you can make your monthly payments every month because if you’re late just once, you’re going to harm their credit score. Trust me, they’ll be pretty pissed when they go in to get a loan and realize that you screwed their credit rating.

The bottom line here is that if you have poor credit, just stick to a cheap car so that you can actually make the payments and build your credit along the way. Or you could pay cash and save up like we used to back in the day. You’ll also want to have a down payment of about 10 to 20 percent to get the best rates. New cars will commonly require around 20 percent down due to their fast depreciation. I understand that 20 percent down is a lot, but to get the best rates, you need to make a few sacrifices.

If you have an existing car that you can sell, take those profits and use them towards your down payment, and you’ll probably have enough. If you don’t have much down, at least see what the banks will give you because it’s worth a try. The best auto loan interest rates are usually around 3 to 5 percent, which will cost you about 30 to 50 bucks a year per thousand dollars that you borrow. So if you’re financing $20,000, then you’re looking at about $600 to $1,000 a year in interest, but that’s with optimal credit score and a good down payment.

If you are offered a rate more than 5 percent, I highly suggest working on your credit or paying cash for the car to avoid going entirely upside-down on it. Being upside-down in your car means that you owe more than the car is worth, which is not a good thing. Cars naturally depreciate on their own, which absolutely sucks but is normal. Just remember that you don’t want to be paying a ton in interest because you will go upside-down in your car.

When you decide to finance a car, I would stick to banks and credit unions because they always have the best rates. Shop around online, and I’m sure you’ll find a bank quickly and easily. Please do not go with your local bank just because you know who they are; that doesn’t always mean they’ll have the best rates. Always go with whoever has the best terms because that’s going to save you the most money on your auto loan. As an example, I live in Utah, and I once financed a car through a company in Canada because they had the best rates, and it was easy to pay online.

Length of the Loan

Simply remember this: the longer the length of the loan, the smaller your car payments are going to be, but the longer the loan, the more you’re going to pay in interest. After just a couple of years, I guarantee you’ll be upside-down in your car and still have five years to go on the loan. Before you go out and buy a car, please call your auto insurance to find out how much the new car is going to cost you.

Final Thoughts

By understanding the amount borrowed, the interest rate, and the loan term, you can make informed decisions about your car loan. Improving your credit score, saving for a down payment, and shopping around for the best rates are crucial steps in securing a favorable loan. Always consider the total cost of ownership and avoid borrowing more than you need. With careful planning and research, you can secure a car loan without getting taken for a ride.