Auto Finance

How do Auto Loans work ? What should one consider while taking Auto Finance ?
Auto loans are loans that you take to finance the purchase of a new car. You can get the financing through the car dealership where you are buying the car, a bank or credit union, online financial companies, home equity or a family member or friend. When you take the loan, you are putting up your new car as collateral which can be taken away if you default on payments. 

There are many factors that will affect the interest rate you get when financing a new or used car including the following
• Your credit rating will be the biggest factor in determining the interest rate for your auto loan. Your credit history and credit score are designed to give your lenders an idea of your credit worthiness. They will typically raise the interest rate if your loan is seen as high-risk.
• The term of the loan will also affect the interest rate. Typically, the shorter the loan period, the lower the rate. But if you take a short term loan your monthly payments will be higher.
• New cars will get lower interest rates compared to used cars
• Where you live will also play a part in determining the interest rate.

Things to consider when looking for auto financing
• Factory-to-Consumer Rebates are rebates the car manufacturer offers directly to you as an incentive for you to buy a specific car. The rebates are not part of the dealer's package and should not be used to bring down the cost price of the car. You have the choice of applying the rebate towards your down payment.
• Typically, in order to get 0% financing, you may have to agree to a short term loan, usually 24 or 36 months, which would mean that you end up with higher monthly payments. Other factors that come into play for 0% financing include your credit score (unless it is lower than 680, you will not get the rate), limitation in car selection (you can buy only what is available on the lot) and you will lose the manufacturer’s cash rebate.
• Look for the special "recent college graduate" program if you qualify given by some car manufacturers. This program gives new graduates a discount on the purchase of a new car.
• Make sure every detail is spelled out on your contract and is correct. Also, make sure that the interest rate you are agreeing to does not change over the loan period.
• The car dealership will always offer you extended warranty on your new car. Shop around for extended warranties as you may get better deals than the dealership.
• Check the car's factory warranty to make sure it has a Rust Perforation Warranty.
• You can get an alarm system installed at most reputable auto shops for half the price of the dealership. This can often save you a lot of money.
• You will almost always be offered life and disability insurance if you are financing at the dealership. The idea is to protect your investment in the event that something happens to you. You should be on the lookout for this insurance being added without your knowledge. You can get much better rates if you shop around for this type of insurance.
• Always make sure you are signing a completed contract and every detail is approved and included accurately.
• Make sure your down payment, trade-in, and rebates are being applied to the sale price of the car accurately.
• Shop for the best deals that you can get. Try your bank, credit union, home equity for better interest rates.