Understanding what it takes to secure your car finance needs is important. Without a thorough understanding you could end up with a bad car loan that costs you a lot of money. Take the time to read this guide to find out how to avoid bad car finance options and stick with the car loan lenders that work best for you.
How Does a Car Loan Differ from Other Loans?
This is the thing that most people struggle to understand. A car loan is based on a depreciating, moving asset. That means that if you aren’t able to make your payments the bank will have a hard time with two things:
1. Regaining the amount of the original car finance agreement
2. Finding the car for repossession
Because of this, they need to build protection into their car finance options for themselves. This means a bad deal for you, but it still allows you to get the car loan you need.
Car Finance Providers Offer Options
The goal of any lender is to provide options for a wide variety of customer types. That means both good customers and those with bad credit. It means offering short term loans and long term loans. But how do they determine which is best for you?
If you have outstanding credit you can choose any option you want. You can get approved for just about anything, as long as you have the income to pay the bills. You can extend your auto loan from six months all the way up to eighty-four. Some banks have loans that go even longer than that.
Those with bad credit have more limited options. Your interest rates will be high, but you can fight to get those brought down. Your terms will usually be limited based on your income. You will not be able to get a longer term, because that means the bank maintains the risk of your loan for a longer time.
Most individuals with bad credit should expect their loan to fall between 48 and 72 months. The more cash down you have (including equity in your trade) the easier it will be to get a loan with bad credit.
The reason is that your car will depreciate at an alarming rate. A vehicle worth $29,000 today may only be worth $6,000 in five years. The more money you put down, the less the bank needs to lend. That means that as time goes on they will have less to worry about, since your payments will continue bringing the amount of the loan down.
Unless you have great credit and the lender is offering 0% financing, you should consider putting a lot of money down, anyway. Interest is just a drain on your finances, no matter how low the rate actually is.
What it all boils down to is what you’re ready to find acceptable. Having a better credit situation will lead to better options. If you need a loan and have bad credit, you won’t have as many car finance options available.
There are many aspects to obtaining car finance and it is important that you are f