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Types of Auto Loans |  |
There are many different ways to finance your new or used car purchase. Some people don’t realize this when they go to a dealer and negotiate a price. They assume they get their loan through the dealership and get the best deal. Not always so! There are different options for financing auto loans.
The first type of auto loan is the kind a large dealership runs with many incentives. They may offer low interest rates, cash back or something free or other if you have a trade in. These are the most common type of loan and the best to use if you have good or above average credit. If you have poor or not very good credit, the big name dealers may not be so willing to work with you. You may have to go to a used only dealer and go for the buy here/pay now option.
The other type of auto loan straight from the dealer is a buy here/pay here loan. People who have bad credit can usually get loans with few questions asked about their credit history. However, these loans usually carry a higher interest rate. Depending on how bad the credit is, the person might need to make weekly or bi-weekly payments instead of monthly payments. If a payment is late or even missed, the penalties and fees for being late are also very high. Forgiveness for not following through on these types of loans usually isn’t very good either and will stain your credit report even further.
A third type of auto loan is where you get financing from a third party. Banks and credit unions have programs where they give special rates for used cars or even new cars. The only problem with a bank loan is they don’t run specials with low or no financing. You will need to compare if the bank/credit union specials are better than a dealership’s specials when financing your car. A bank may be willing to loan you money even if your credit is a little shaky because you do your banking business with them.
Some banks and credit unions will offer sub-prime loans to people with not very good credit. Their loans will carry a higher interest rate, but not as high as the buy here/pay here dealer offers. A sub-prime loan may give you a better feeling because you know the bank or credit union is reliable and won’t sell your loan or jack up the interest rate.
Another type of loan can be done online. When using an online loan, use caution. Online loan companies can’t be researched as well as someone like a car dealership or even your bank. The companies might not always be truthful, so ask them lots of questions. Call their customer service and verify who they are and what they do. Call the BBB and see if they have complaints filed against them.
If you still don’t know what type of financing to use, consult your family and friends. See what method they used for financing their auto loans and if they were happy with the method they chose. Not every method will work for every person. Each situation is unique and needs to be treated as such, but friends’ recommendations will go a long way to helping you decide what you can handle.
When you need an auto loan, do your research before committing to any lender. Make sure the interest rate is fair for what you are getting, the lender is honest and that you feel comfortable turning over a monthly payment to that person or business.