Best Auto Loan Rates 2019 - Best Car Loan Rates and Lenders
- Types of Auto-loans
- Simple Interest Loans
- Pre-computed Loans
- Car-Title Loans
- Auto-Loan Terms
- Auto Loan Rates
- How to Get a Car Loan
- Check Your Credit
- Determine Your Budget
- Cost of a Loan
- Shop Around
- Get Pre-Approved
- Choose your Car
It would be nice if you had enough discretionary income to purchase a new car whenever you wanted. If you are not one of those few, you can still buy any car that falls into your monthly budget with an auto loan. Auto-loans allow you to purchase a car and make payments over time. The auto industry is one of the most developed and stable sectors, with projected sales of more than 16 million units in the United States. The liquid nature of automobiles, allows lenders to feel comfortable that they can create auto-financing and quickly sell these products if a borrower defaults. Auto loan rates allow you to purchase cars without having to financially over-extend yourself, as the term of the loans can last 84-months with the average length of an auto-loan near 65-months.
Types of Auto-loans
Simple Interest Loans
There are basically 2-types of auto loans. Simple interest loans are the most common. The interest rate that is used for this loan is based on the outstanding balance of the loan. For example, if you borrow $30,000 for a car that cost $35,000, your interest payments are on the $30,000 that you borrowed. After a year if you pay off $5,000 then you pay interest on the balance which is $25,000. There are no restrictions for early payment.
Some lenders offer to finance referred to as Pre-computed loans where the principal and interest is pre-calculated ahead of the signing of a loan agreement. This type of loan has the disadvantage of not allowing any pre-payments.
These are loans that are based on the equity that you own in your car. Generally, these loans have much higher rates and are for people that are having a tough time gaining access to financing.
Standard – This is the most common term which is 5-years or 60-months. This means that you make a loan payment every month for 60-months.
Short-term – Generally these loans are less than standard, lasting for either 36 or 48 months. The benefit of these types of loans is that you pay off your loan quicker, and own more equity in your car sooner. The downside is that your monthly payments will be higher.
Long-term – These are loans that last 72 or 84-months. Many borrowers like long-term loans, because they bring down the payments. The downside is that you will generally experience higher interest rates than on standard or short-term loans. Additionally, you could be upside down, which means that you owe more on your loan than the car is worth. This means if you have an accident, your insurance might pay off what the car is worth but you will still own the balance of the initial car loan. Additionally, it will take you longer to accumulate equity in your car.
Auto Loan Rates
You can find rates for different auto loans in multiple places, such as FX Empire or on many bank websites. Rates are posted by a term, for 1) new cars purchased from a dealer, 2) used cars, which are purchased from a dealer, 3) private party purchases, and 4) lease buyouts. Rates can fluctuate based on your credit history, and discounts that are offered by a lender, as well as, the term of the loan.
How to Get a Car Loan
If you decide that you are interested in a car loan, there are several steps you should take before you start the process. First, you should understand that getting a car loan, takes time and you should shop around before you make any decisions on where to transact your loan. If this is your first time getting a car loan, you should do some due diligence before you pull the trigger.
There are many different lenders which include banks, credit unions, insurance companies and financing companies. Finance companies can include the lending arm of an automobile company such as Honda Financial Services.
Check Your Credit
The first step you should take is to check your credit. If you have gone through the process of attaining an auto loan before, you understand how important good credit is toward getting an auto loan. You want to make sure there are no erroneous issues on your credit score prior to having a lender run a credit check. You can check your credit for free on several websites. Understand that the credit score you receive might be different to the one run by your prospective lender as many times your credit report is customized to the lender who is running the report.
If you do not have any credit history or your credit score is bad, you can still get a car loan. With no credit history, you might have to get someone to cosign for the loan, which means that they will also be on the hook if you cannot pay back your loan. If you have bad credit you are likely to pay a much higher rate than someone with a good credit score.
Determine Your Budget
Your goal is to determine how much you can afford on a monthly basis. Once you have determined this amount, you can back into the size of the loan that you can borrow. Remember to include items that are not included in your loans such as insurance and maintenance. Additionally, remember there is sales tax on the car as well as registration fees. Sometimes there are even transportation fees to get the car you want to the dealer. These all need to be included in your loan unless you plan on paying these fees upfront and out of pocket.
Auto loans are generally 3-7 years. The longer the term of the loan the lower the monthly payment. This is because you are taking a long time to pay back the principal, which is extended over a longer period. For example, if you borrow $20,000 for 3 years, you will need to pay that back in 36-months. If you broke this down equally your payments without interest are $555 per month. If instead the term of your loan is 5-years or 60-months your monthly principal payments would be approximately $333 per month. The true cost your loan is more than the $20,000 because you need to pay the lender the interest on the principal.
Remember, when you take out a long-term loan, you will owe more than your car is worth for a longer period of time.
Cost of a Loan
The cost of a car loan includes the interest that you pay on the money that you borrow. The interest rates will vary depending on the term of your loan, as well as your credit score. Additionally, if your loan is covering your taxes and fees, you will pay an interest charge on both of these which makes up the total cost of your loan.
The interest is based on the outstanding principal, so as you pay down your loan, you will own less interest. For example, if you borrow $25,000 at 3%, for 5-years, you will be paying down your principal at $5,000 per year. During the first year, you will pay 3% interest on $25,000. In the second year, you will only be paying interest on $20,000. Each month that you pay down your balance you eliminate that amount from the principal you pay interest on.
You don’t have to go to your local bank to receive your car loan, instead, you should shop around to find the best deal. You can look on website aggregators like FX Empire to find the rates that best suit your needs. In addition, many banks, and insurance companies offer discounts to customers who already have either checking or savings accounts or insurance policies.
Most lenders will provide you with a pre-approval of a specific loan amount on a certain type of car (such as a new or used car). This is like having a blank check and allows you to shop around for the best deal knowing how much you can afford. When you get a pre-approved loan, you don’t have to spend the entire amount, and will only be charged on the amount that you use.
Choose your Car
Once you have been pre-approved, and have determined your payment terms, and have checked your credit, it is time to choose your car. If you know the amount you can afford it will provide you with the leverage you need to focus on negotiating the best price. There are dozens of ways to find the best deals on specific cars, including using products that will provide you with the range of prices of specific makes and models throughout the country.
Finding the best rate requires some legwork. If you take the time to find the loan that fits your needs, it will definitely be worth your while. Here are 6-tips for finding the best car loan.
- The most obvious tip is to shop around. When interest rates are low, lenders are looking for customers who have good credit ratings and are looking for standard loans.
- If you can afford it, take a shorter term loan. While your monthly payments will be higher, the rate you will pay will be lower than a longer-term loan.
- While a new car might be more expensive than a used car, the rate you will receive will be lower on a new car.
- Don’t Incorporate Extra’s with your Loan – When you purchase your car, you will have to pay sales tax and fees, which can be paid with your loan or with out of pocket funds.
- Find Discounts – Many banks and credit unions offer deals to customers that have specific types of accounts.
- Consider a Zero Interest Loan – These are loans where the lender does not charge interest for the loan. These loans are very tough to qualify for and usually come exclusively from the manufacturer. The manufacturer is lending you money to buy their car as an incentive to purchase their vehicle. Zero interest loans are not a scam. Another term that is used is cash back. Here the manufacturing is giving you money up front to purchase their car which can be used to reduce the loan amount.
The auto industry in the United States is very robust and strong sales are driven by low-interest rates and heavy demand for financing. In 2016, auto loans soared to record highs hitting 1.2 trillion dollars of auto debt. According to consumer reports, nearly 85% of the cars purchased in the United States are backed by auto loans. Part of the boom in auto loans is due to record low-interest rates that have been near or below 1% for the past 7-years. Even if rates rise over the next couple of years, current levels remain very attractive.
Auto loans are attractive as they allow consumers to finance a car at a very low rate using the car as collateral. With the exception of home mortgages, there are few assets that provide such strong collateral. With nearly 16-million cars sold in the United States annually, the liquidity of the business allows the lender to feel comfortable issuing auto loans.
If you plan on purchasing a car with an auto loan, there are several steps you should take prior to pulling the trigger. These include checking your credit, shopping for the best deals, figuring out the term of your loan, looking for any discounts and help you reduce the rate on your car.
Each loan has its benefits and drawbacks. While short-term loans allow you to borrow at a very low-interest rate, your monthly payments will be the highest. Longer-term loans allow you to reduce your monthly payments as your spread out your principal, but the rates will be higher than short-term loans. Your goal is to find the payment terms that fit your budget, and the rate that will allow you to purchase your car in an affordable manner.