It is a big decision when you decide to buy a car. It does not matter if it is a used car that is old and cheap, or if it is relatively new and expensive. The same factors need to be considered before obtaining an auto loan for used cars. The debt is going to be weighing over your head, so you have to know what your budget can afford, and if you are going to be able to make the payments without defaulting, and running the risk of damaging your credit score rating.
One of the biggest factors to consider before obtaining an auto loan is your credit rating. If you have a good credit score, then you will be in a better position to receive a much lower interest rate than if your credit is risky or poor. Your credit rating is affected by all of your credit cards and loans, so you should find out as much about your credit as possible. You can get a free report at annualcreditreport.com, and this can help you to find out your personal scenario. If your credit is low, and the car can wait for a little while, it may be in your best interest to try and improve your credit score by following some simple steps. This should be considered before you visit the used car salesman and find yourself impulsively buying a used car, which is one of the biggest mistakes made.
The amount of the loan is another one of the biggest factors to consider when you want a car loan. The amount you borrow, otherwise known as the principal, is the monetary number that you will need the loan to cover. Depending on your credit score, you may only be able to borrow a certain amount of money, and therefore you need to refine your car search, tailoring it to your specific financial situation.
The interest rate is a massive factor to consider when taking out a car loan. Depending on your credit rating, your interest rate will fluctuate wildly. The lower the interest rate, the better. No matter how much it is, you should always comparison shop and find the lowest possible interest rate, no matter what your credit rating is at the time. Every small percentage point can save you a ton of money in the long run, considering the average amount of time a car loan is taken out for. Zero percent financing is available on new cars, but rarely, if ever, on used cars.
A sub-prime lender will often target students and those with poor credit in order to lure them into their lair of debt. A car loan with a sub-prime lender is risky, and can seriously damage your credit rating. They often force you into high interest rates, and lengthy car loan repayment schedules, all the while stripping your pockets bare.
If you have poor credit, or no credit at all, you may have to get someone to co-sign for you. A co-signer, usually someone like your parents, is on the hook for your payments should you default. This is not the ideal situation to be in, but sometimes it is your only option.
The length of the car loan is a major factor to consider when trying to obtain an auto loan for a used car. Long-term auto loans are ticking time bombs, drastically crushing you with high interest rates for a long time. You will be paying off more than the car is worth in very little time. The long-term auto loan seems enticing when you realize the payments are fairly small, but it is best to take the shortest possible amortization schedule that you can afford.
Figuring out what type of car is right for you is another consideration to make before getting an auto loan. You should exhaustively research makes and models, and regularly check consumer reports to find out what cars are recommended, and which ones should be avoided like the plague.
Being a smart consumer will help you to make an informed decision when you are in the market for a used car. Finding the best auto loan should be your first consideration. Spend wisely, because cars depreciate so quickly that you might truly regret your decision almost immediately, and you will be stuck for the length of the loan.