{"id":5441,"date":"2019-07-02T09:18:13","date_gmt":"2019-07-02T09:18:13","guid":{"rendered":"https:\/\/www.loanry.com\/blog\/?p=5441"},"modified":"2022-06-02T18:48:11","modified_gmt":"2022-06-02T18:48:11","slug":"auto-loan-basics-spelled-out","status":"publish","type":"post","link":"https:\/\/www.loanry.com\/blog\/auto-loan-basics-spelled-out\/","title":{"rendered":"Auto Loan Basics Spelled Out: Lending 101"},"content":{"rendered":"

[vc_row][vc_column css=”.vc_custom_1651612349787{margin-top: 1em !important;}”][vc_video link=”https:\/\/www.youtube.com\/watch?v=qRlB6n7Vem8″][\/vc_column][\/vc_row][vc_row][vc_column css=”.vc_custom_1651612836707{margin-bottom: -1.2em !important;}”][vc_column_text]Ever notice how there are things it feels safe to ask about and other things you feel like you\u2019re supposed to just magically\u2026 know<\/em>?<\/p>\n

A friend of mine recently mentioned she\u2019d purchased a car. She told me the color, make, and model. I asked about the engine, its features, and how it felt to drive. These are the polite things one does when someone is excited about a recent purchase, right?<\/p>\n

What I really <\/em>wanted to know, however \u2013 but didn\u2019t feel I could ask \u2013 was how she financed it. What interest rates are auto lenders<\/a> offering these days? Also, what sorts of terms can someone with average or even bad credit get? Is the process as painful as I seem to recall from when my parents were doing it a generation ago, or has it gotten any better?<\/p>\n

Too many of us feel foolish asking about auto loan basics when there\u2019s really no reason we should. You\u2019re not missing some critical link in your genetic code. You weren\u2019t skipping the day they covered auto financing in Adulting 101. Maybe you\u2019ve simply not financed a vehicle lately. (If it makes you feel any better, I know plenty of people who have financed their cars. Those often still don\u2019t quite know how it works.)<\/p>\n

Let\u2019s look at a few auto loan basics.[\/vc_column_text][\/vc_column][\/vc_row][vc_row][vc_column css=”.vc_custom_1651613881495{margin-top: -0.7em !important;}”][vc_column_text]<\/p>\n

What Is a Car Loan and How Does It Work?<\/h2>\n

I know \u2013 it sounds so simple, right? But for most of us, purchasing a car is one of the biggest and most important financial decisions we\u2019re going to make. Surely that\u2019s worth a little planning ahead?<\/p>\n

There are two basic types of auto loan<\/strong>: direct lending or dealership financing. With direct lending, you make arrangements with a financial institution of your choice. Usually before you buy.<\/p>\n

Your local bank, credit union, or other auto lenders<\/a> are usually happy to share their current rates and terms with you. This gives you the freedom to comparison shop ahead of time. You can figure out your budget and realistic payment options before even talking to a car dealer. Pre-approved financing can sometimes help you negotiate a better price<\/strong>. Especially since your funding is already secured.<\/p>\n

Dealership financing is not dramatically different. However \u2013 as the name suggests \u2013 takes place through the dealership. Some automakers have their own financing departments. It means your loan is actually through them. Most have arrangements with outside finance companies. They transfer your loan to them before your first payment even comes due. Dealership financing offers you additional convenience in that you know exactly what car you want<\/strong>. You also know how much you need to finance before setting up the loan. Plus, it\u2019s available whenever the dealership is open. Either late nights, long weekends, holidays, etc. Dealers also love running promotions with special interest rates or other terms which you might find appealing.[\/vc_column_text][\/vc_column][\/vc_row][vc_row][vc_column][vc_raw_html]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[\/vc_raw_html][\/vc_column][\/vc_row][vc_row][vc_column css=”.vc_custom_1651613888519{margin-top: -0.7em !important;margin-bottom: -1.2em !important;}”][vc_column_text]<\/p>\n

The Car Loan Process<\/h3>\n

Don\u2019t feel foolish if you\u2019re not sure how to shop for a car loan. Auto loan shopping<\/a> isn\u2019t difficult, but it is different than it was a generation ago.<\/p>\n

The good news is that technology has made it easier than ever to get started. The first thing to do is to figure out a realistic budget<\/strong> using an online auto loan<\/a> calculator. In the 21st century, this is an essential requirement of Auto Loan Basics 101. Most versions will let you play with interest rates, lengths of the loan, and other factors to figure out what works best for you. Then, check your current credit report<\/strong>. The earlier you begin this part, the easier it will be to address or correct any errors.<\/p>\n

It\u2019s also a good idea to research your vehicle options ahead of time<\/strong>. This should be part of everyone\u2019s auto loan basics, but sometimes our emotions take over and we get careless. Make note of what features you consider essential and which would simply be nice to have. Check the range of prices you might be able to negotiate using sites like the National Automobile Dealers Association<\/a>, Kelley Blue Book, or Edmunds.<\/p>\n

Once you\u2019ve got your information together, you\u2019ll find auto loan shopping online<\/a> to be relatively painless. You\u2019ll probably be surprised how quickly you hear back from multiple auto lenders. Obviously you should consider each offer carefully before committing<\/strong>, but personally, I much <\/em>prefer having lenders compete for my business over the old way. Maybe our parents were willing to slog from lender to lender, sit in an endless array of hygienically-suspect chairs, and endure suspicious looks and questions from disgruntled loan officers, but you don\u2019t have to.<\/p>\n

Unless you\u2019re just into that sort of thing, of course. In that case, have fun.[\/vc_column_text][\/vc_column][\/vc_row][vc_row][vc_column][vc_column_text]<\/p>\n

How Is Auto Loan Interest Calculated?<\/h3>\n

This is another part of auto loan basics which too often makes us feel foolish when there\u2019s no reason we should. Most auto loans involve simple interest, meaning you pay interest only on the principle <\/em>of the loan<\/strong> (the actual amount borrowed to pay for the vehicle and related costs like taxes). The alternative is compound interest<\/strong>, in which the borrower pays not only on the principle amount but on any remaining interest owed \u2013 interest on interest, as it were. Usually you only want to hear the term \u201ccompound interest\u201d when you\u2019re earning money on your savings!<\/p>\n

If you want to dive into the nitty gritty details of what interest can look like over the life of your loan, check out this breakdown by IFS. They explain it quite effectively with plenty of visuals.<\/p>\n

Who Offers the Best Auto Loan Interest Rates<\/em><\/p>\n