What You Need to Know About Car Loans

A car loan is made by a financial institution to you to buy a vehicle with the expectation you will pay back the full value of the loan plus interest. The lender will secure the loan with a lien on the vehicle. The lien is recorded on the vehicle title and released when the loan is paid off. If you do not pay back the loan the lender may repossess the vehicle and if the vehicle is worth less than the remaining owed on the loan the lender has the right to continue to collect from you the difference between the value of the vehicle and the outstanding amount of the loan.
The loans may be structured for varying amounts of time. Vehicle loans are typically 36 or 48 months but can be for shorter or longer periods of time. The length of time over which you pay back the loan is called the term of the loan. You generally want to pay off a vehicle loan in less than five years to avoid owing more on the loan than the vehicle is worth. The shorter the term of the loan the less you will pay in interest over the life of the loan and the higher the monthly payments.
The interest rate on a car loan will vary depending on your credit history and the amount of down payment you are making on the car. A down payment of over 20% of the cost of the car will typically get you a lower interest rate. The interest rate is generally expressed as an annual percentage rate or APR and includes all interest paid plus any fees charged for making the loan.
If you want to calculate the monthly payments there are a number of free online calculators that will do that for you if you enter the amount of the loan, the interest rate and the term of the loan.
A couple other suggestions of questions to ask potential lenders when shopping around for a loan:

• Ask the potential lenders if you will qualify for a lower rate if you get disability or life insurance.

• Shop around for the best loan. Check out banks, credit unions as well as any financing options the dealer may offer.

• Ask about prepayment penalties, if you are able to pay the loan off early you don’t want to be stuck with a penalty.

• Ask about automatic deductions for your loan payments sometimes an automatic deduction will get you a lower interest rate.

It may sound counter intuitive but sometimes you can get a better deal buying a new car rather than a used car if you take into account manufacturers and dealers discounts, cash back offers and lower interest rate promotions.
Don’t overlook the internet when looking for the best loan and car purchase deals. The internet will give you access to dealers and lenders from all over not just local dealers and lenders.