Auto Loans – Getting the Best Financing

Because so many of us need cars, but only a small minority of us can afford to pay with cash, auto loans have become a necessary part of life.

Even if you have the cash to buy your car, you may still choose to get an auto loan or lease your car because while you own the car straight away with cash, there are some clear advantages of not paying outright.

Autotropolis.com offers some useful information to help you make the big decision about which loan to use easier and more painfree.


Disadvantages to paying cash include:

• Sometimes you don't want all your money tied up in one thing because you are saving for something else like a house.


• Having a car loan can be a good way to build a credit rating even if you have the cash to pay.


• If it is to be a business car then the advantages of leasing over paying outright are significant because the depreciation and financing can be written off as a tax deduction. The majority of businesses choose this approach.


• By taking a loan you can often buy a more expensive car than you can afford with cash.

But don't fear, because auto financing doesn't have to be bad experience. If you go into it with all the information you need, you can organise a loan that meets your individual needs.

If you need finance to buy a car, there are two main choices you have. One is to lease a car, and the other is to get an auto loan.

Auto Loans

There are some clear advantages of an auto loan:

• As you make your monthly payments you are building equity in the car.


• Once you have completed your payment term the car is yours.


• There is no limit to the miles you drive or the improvements you make to the car.


• Insurance rates are lower with this kind of loan.

There are also some disadvantages to auto loans:

• Often higher monthly repayments.


• A down-payment will be required (either as cash or a trade-in).


• There is the risk that with depreciation your vehicle will be worth less that the loan amount within a few years.


• By the time you finally own it outright it will no longer be a new car.

Leasing

Some of the advantages of leasing your car:

• Instead of a high monthly payment you only pay for the depreciation and use of the vehicle which usually works out less than an auto loan.


• It allows you to drive a new car every few years rather than waiting to pay off a loan.


• There is usually little or no downpayment required.


• It provides better tax deductions for business purposes.

Disadvantages include:

• The car is not and will never be yours, so you can't make modifications to it.


• There is usually a yearly mileage limit beyond which you pay extra.


• You are not building equity in the car - when the lease is over you have to hand it back.


• If you break the lease agreement you will have to pay a penalty which is sometimes very high.

There are a number of different types of auto loans and it is worth understanding the ins and outs of all the different ones so you can choose which one is best for you.

Buy here pay here loans

These loans are offered by special dealerships who offer the finance directly from their own funds. They are the lender, not a bank or any other lending institution. This is often a great solution for people with a bad credit history because these dealerships usually only want proof of steady employment. The drawback is that they can charge as much interest as they like and it is usually significantly higher than other lending institutions (up to 24% recently). The advantage is that you may be able to negotiate your monthly payments and interest rates more than with a lending institution.

Dealer Acquired Finance

Many dealerships help the buyer to get financing through the lenders they are affiliated with. This can sometimes be helpful because they can submit your credit details to a number of lenders to get approval and the best rate. Unfortunately in the past a number of lenders have come under fire for "packing" interest rates ie. Adding their own percentage on top of the lenders interest rate. This has recently been capped to less than 2.5% so is now much less of a problem.

In this case often the interest rates can end up extremely low - much lower than banks, and monthly repayments can also be negotiated to a greater extent.

Manufacturer Financing

Manufacturers often offer special financing deals in conjunction with their rebates and other incentives. These are often only for people with high credit ratings, but can often mean great rates as low as 0.9%. Even if your credit rating is not so high, you may be eligible for a higher rate (but still less than banks) especially on previous models. Often it is in the manufacturers interest to give great deals in order to boost sales or shift low-selling models.

Upside down loans are when you owe more on the car than it is worth. It is estimated that 40% of all car loans are now at this stage and it can be demoralising to feel that even if you sell the car, you will still owe money on it. If you are trying to sell your car with an upside down amount owing, there are a few options.

• You can pay the difference outright to settle the amount owing.


• You can try to negotiate a better trade-in price on the old car if you commit to buy a new car from that dealer.


• You can re-finance the upside down portion by incorporating it into your new loan.

The last option is the most common but can lead to an even more difficult situation because you end up paying for both the old and new cars together and your repayments will be higher. More and more cases of upside down loans are occurring because downpayments are being reduced (which means you have more to pay off), the term of loans is becoming longer to minimize monthly repayments, and cars are rapidly depreciating.


Some ways of avoiding upside down loans:

• Take on the shortest loan term that is possible for your financial situation - 72 months is bound to get you in trouble!


• Put down as much as you can for the downpayment to lower your repayments and reduce the term of your loan.


• Buy a used car instead of new to reduce the effect of depreciation.


• If at all possible, pay off the upside down portion of your loan BEFORE buying a new car.

Autotropolis.com offers a number of really useful calculator tools to help you make the best decisions about your next car loan.

Auto Loans
Find out how much automobile you can buy based on your monthly payment, or find out your loan payment based on your purchase price!

Auto Rebate vs. Low Interest Financing
This calculator helps you decide whether you should take advantage of low interest financing or a manufacturer rebate.

Home Equity vs. Auto Loan
This calculator helps you determine if a home equity loan makes sense for your next automobile purchase.

Lease vs. Buy
One of our most popular calculators that tells you in black and white whether you should lease of buy.

Low Interest Financing Savings
This calculator to help find the best monthly payment and how much interest you could save with low interest incentives

Financing

Car Dealer Financing

Building Credit with Car Loans

Disadvantage to Financing a Car

Upside Down Auto Loans