How to Find the Best Auto Loan for You
Auto loans are a great way to purchase a new car without having to pay its total price in cash. A car loan allows you to save up on hundreds if not thousands of dollars on your vehicle while providing you with the flexibility to make small monthly payments.
Here are some of the benefits of getting an auto loan:
1. You can borrow a hundred percent of the car’s purchase price
An auto loan allows you to borrow the full amount of a car’s purchase price, so you can drive off in your car as soon as your paperwork is finished.
2. Auto loans can be tax-deductible
If you are a business owner that applied for a car loan for your business, then your finance costs can be tax-deductible. This means that your monthly payments will be subtracted from your adjusted gross income, which as a result, reduces your taxable income.
3. Saves your cash for other expenses
The best thing about auto loans is that you get to keep your cash savings for other expenses. You will not have to pay your whole car’s purchase price in cash. However, you may have the option to put a down payment on your auto loan, which can lower your monthly payments.
4. Helps you build your credit
As you make your monthly payments on time, you build good credit. Your payments will be reported on your credit report, thus increasing your score. This can be useful for future purposes like business loans or mortgages. The better your credit score is, the lower the APR you will have to pay.
Before you go ahead and get an auto loan and start looking for cars, there are a few things you need to consider that can help you find the best auto loan for you.
1. Set your budget
Setting your budget is the most important factor to consider before applying for an auto loan. It is vital that you know how much you can afford across your long-term loan. Here are the common loan terms you need to be familiar with:
As we mentioned earlier in the previous section about the benefits of auto loans, you are able to make a down payment on your loan. This helps you lower your monthly payments, giving you more flexibility in your payment obligations. Experts usually recommend putting at least 20% of your auto loan’s amount as a down payment. Some lenders might require you to put in a certain down payment, while others may not require it.
Your monthly payments are what you will pay each month to settle your loan. It is important that your monthly payments are not higher than your monthly income and are lower than your monthly living expenses, so you do not end up in more debt as you pay for your loan.
Your loan term is the period of time over which you will repay your loan. Loan terms can usually be up to 84 months. The longer your loan term, the lower your monthly payments will be. However, you could be subject to higher APR and interests with long-term loans, which you will have to pay.
The annual percentage rate (APR) is the annualized interest rate you will have to pay on your loan. The lower your loan’s APR, the lower your interest rate is.
2. Review your credit
The next factor you need to consider before getting an auto loan is your credit score. Your credit score is a huge factor that affects your eligibility for an auto loan and your loan’s annual percentage rate.
You are entitled to a free credit report every year from the three major credit bureaus. You should review your report for any mistakes or errors and work on fixing them before applying for an auto loan. Working with a credit repair company is also a good option, as they will contact the credit bureaus on your behalf to dispute any negative items and inaccuracies from your report.
You can read more about the best credit repair companies here.
3. Compare offers from lenders
Comparing multiple offers from different lenders can help you choose the best auto loan for you, as each offers different interest rates. Some lenders accept bad credit or no credit history, which can be useful if you are a student, while some require a minimum credit score to be eligible for their loan.
You can get your loan from:
An auto dealership
Auto dealerships can be a more convenient lending option. You get to skip a separate visit to a lender and receive a number of financing options and incentive programs.
A direct lender
Banks, credit unions, and online lenders are an example of direct lenders. You can secure your financing through them and get preapproval on a loan amount and interest rate.
Avoid misleading sales tactics
Many auto loan lenders might entice you to make deals you cannot afford. For example, you could be offered low monthly payments as a misdirection from a car’s high price. While it is important your monthly payments are low, you should not overlook your car’s overall price and your whole loan amount.
Another misleading sales tactic is being offered a low down payment on your car loan. Again, you should not overlook your total loan amount when your down payment is very low, as you might end up borrowing more than you can afford.
Lastly, you could be enticed by some perky car features that come at a much higher cost. Make sure you stick to your budget and get the car with the features you actually need.
5. Get your own insurance
Lenders will offer you several types of insurance with your loan. If you are after the cheapest auto loan, it is best you skip any offered insurance plans. Such insurance types include:
- Liability insurance
- Credit insurance
- Collision insurance
You are probably better off getting any of these insurance types on your own, as they might be cheaper or unnecessary in the first place.
6. Avoid prepayment penalties
A prepayment penalty is when you pay off your loan before your loan term ends. Some lenders may impose this fee while others may not. So be sure to read the fine print of your contract and look out for prepayment penalties.
Now that you are all too familiar with how to find the best auto loan for you allow us to present you with the best auto loan company recommendations, which will help you get the best auto loan for you.
1. Jovia Financial Credit Union
For our first recommendation, we offer you Jovia Financial Credit Union. Jovia Financial has eight decades of experience in providing consumers with the auto loans they are looking for.
Getting your auto loan from Jovia will provide you with the following benefits:
- Maximum loan term of 102 months
- Starting APR at 2.59%
- No prepayment penalties
- 100% financing
Jovia Financial offers you over 10,000 different car makes and models to choose from but requires your membership enrollment to be eligible for an auto loan.
2. Navy Federal Credit Union
Navy Federal Credit Union is our second recommendation. NFCU offers great auto loan rates for active military members, veterans, and their families. With NFCU, you get the following benefits:
- APR rates for auto loans are as low as 2.29%.
- Get $200 when refinancing your car with Navy Federal.
- Customer support is responsive and available on multiple communication channels.
- Easy and fast online application.
- More than 20,000 cars to choose from.
Carvana is our third-best recommendation for an auto loan provider. Simply because it offers the most straightforward auto loan process where your prequalification is valid for 45 days. Getting an auto loan from Carvana provides you with the following benefits:
- 2-minute average approval time
- Next-day car delivery
- Great condition used cars
- Prequalification with no effect on credit score
- No required minimum credit score
- Starting APR at 3.90%
Moreover, Carvana offers a 7-day money-back guarantee from the moment you get your car, but with a limit of 400,000 miles. So if your car breaks down during that period, you are entitled to a full refund.