Most of us do not have the cash to buy a car out right in cold hard cash. That means seeking out financing via an auto loan. Deciding who to secure financing from is half the battle, the other is deciding which lenders offer the best rates and terms that best suits your unique financial situation. Understanding the basics of auto loans rates will help you find the best possible deal for your unique financial situation.
Auto loan rates are decided largely by two factors, your credit score and the Federal Reserves impact on interest rates in regards to weather they raise or lower its interest rates. If the Fed raises interest rates then your loans interest rates will be higher accordingly, which results in a higher monthly payment. On the opposite spectrum your monthly payments will be lower should the fed reduce its interest rates.
Not all fixed rate auto loans are equal. Indeed they vary due to fees and other considerations between banks, credit unions, direct financing companies and securing a loan from auto dealerships (which are often the most expensive financing) and manufacturer finance arms. This is why finding the best deal can be rather difficult at best.
Getting pre-qualified can be one of the wisest moves you can make when it comes to seeking out financing. It helps by locking in low rates, preventing an increase in rates. You can then use that offer as a bargaining chip when shopping for other offers by simply stating you have this deal from this lender on the table. When shopping for a car focus first on nailing down the best possible price for the car or auto before even tackling financing, this put you in a better bargaining position when they do not know the state of your finances.
Auto dealers tend to offer the worst possible financing as they tend to tag on extra fees. These extra fees come in handy when they later sell off your auto loan. They also tack on extra percentage points so if at all possible avoid auto dealership financing, as it is stacked in their favor in most cases. In the majority of the cases you can find much more attractive financing elsewhere. However this is not always the case, as when it comes to finances their is always twists and turns. You could find a good auto dealer financed loan, but you need to examine the fees, the quoted interest rate, the down payment required as well as the terms (length) of the loan.
If you own your own home there is one smart way to finance your new car. A HELOC or home equity line of credit. The reason for this is two fold. For starters these loans tend to be lower interest than any auto loan you will find on the market, Secondly you can at times deduct the payments on your federal income tax if you itemize them on your federal tax return but you would need to consult a tax professional before hand to decide if this is the best move for you. The only drawback is most HELOCS are variable interest rate versus a fixed interest rate. A HELOC works well if you can pay off the balance in about 36 months otherwise a fixed rate home equity loan might be the better move.
Hopefully this makes shopping for your next short term orauto loan much easier and sheds some light on the auto loan process.