Compare the Best Car Loans 2021
How To Compare Auto Loans
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What Is a Car Loan?
An auto loan or car loan is a form of personal loan used to buy a vehicle. A lender lends you the funds required to purchase a car.
In exchange, you promise to repay the lender the loan sum plus interest, normally in monthly installments, until the debt is completely paid.
A large portion of personal loans is unsecured. This means that the loan is made solely on the basis of the borrower’s creditworthiness and is not backed by collateral.
Auto loans are unique in that these loans are almost always secured, with the car itself serving as collateral. If you do not make the payments, your car will be repossessed and then sold off to repay your debt.
Direct Lending Options
With a direct loan for a car, you get a personalized loan directly from a loan company, bank, or credit union.
You’ll generally receive a financing check or a wire transfer to your bank to pay for the vehicle and any other items, like a service contract, options, or extended warranty.
Shopping around to find the best direct loan allows you to:
- Find a lender that suits your payment terms.
- Compare auto loan rates.
- Receive funds directly into your bank account.
You can review credit terms before choosing a loan and buying a vehicle, so you’ll know the interest rate/car loan rates upfront during the loan process.
Finally, because you received the funds directly from the bank, you basically become a cash buyer at the dealership, giving you the upper hand in the negotiation process.
Why Compare Auto Loans at Financer.com?
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Dealership financing is typically the path most buyers take because it’s generally the most convenient at the time.
While it may seem like the dealership is providing the financing, it’s not. The dealership simply shops around at various banks that offer loans to pay for the vehicle.
The dealer then chooses the loan that they feel is best for you. When you enter into the contract, you’re entering it with the bank, not the dealership - they are simply the middle man for auto financing.
However, there are a few downsides to dealership financing:
- The dealer may present only loans that offer kickbacks.
- You’re separated from the rate negotiation process.
- There may be better options that you never hear about.
- Dealers can creatively package loans to make any deal seem good.
Dealership financing doesn’t guarantee the lowest rates, best terms, or lowest APRs, because it incentivizes the dealership to use a third-party lender that will share profits with them.
Benefits of Online Car Loans
Car Loans for Bad Credit
It may seem impossible to get an auto loan if you have a bad credit history, but the good news is that it isn’t.
While a good credit score can help you get better loan rates, there are still options available for borrowers with poor credit namely bad credit auto loans.
Bad credit car loans are possible as there is no minimum credit score required to apply for an auto loan. In fact, borrowers in the U.S. with credit scores below 670 have the same number of car loans listed on their credit reports as those with higher credit scores.
Even with bad credit, you want to find the best car loans that will offer fair interest rates, flexible repayment terms, and fast payouts.
Tip: Use an auto loan calculator to find the best car loans for bad credit.
Buying a new car will typically require a downpayment, with the balance financed by a loan that you’ll pay back in fixed installments. A car loan calculator can help you work out what your repayments will be to ensure that you can afford the loan.
Car Loans - FAQs
How do I apply for an auto loan?
Take out a piece of paper and create a practical budget that shows you how much you can spend in terms of monthly payments. Keep in mind recurring expenses such as insurance, repairs, and electricity. Next, calculate the cost of your down payment or the value of the car you want to trade-in.Review your credit score
Before speaking with lenders, it’s a good idea to know what your credit score is. You can check your credit score for free on some websites and you can also pay to get your credit rating from leading credit bureaus. Auto loan lenders base loan terms and interest rates on credit reports and ratings. The better your credit rating, the better your chances of securing a lower interest rate.Compare lenders to find the best loan terms
Terms and rates differ between lenders. To get a quote, contact many lenders, including credit unions and your bank. The dealer can also have financing, but if you shop for the best loan rate before going car shopping, you’ll be able o negotiate.Get pre-approved
Getting pre-approved for a loan ensures you’ve defined your financial boundaries before visiting a dealer’s showroom. Pre-approval does not imply that you have made a decision, but it does provide you with an amount you’ll be able to afford.Find your car
It’s now time to pay a visit to your favorite car dealerships. Once you find the car you want, you can provide your lender with the year, model, make, and VIN (vehicle identification number). You can also get auto insurance immediately. Most dealerships won’t let you take the car away until you provide evidence of auto insurance.
What do I need to apply for a car loan?
If you opt for dealership financing, you will usually submit your application through the finance and insurance office at the dealership.
This will involve completing an application, which will require such information as:
- Social Security number
- Date of birth
- Length of employment
- Income sources
- Gross monthly income
- Income to debt ratio
Each account’s status will also be included on your credit report, including any overdue amounts and if the account is open or closed. If a creditor has taken any legal steps to collect on a debt, this information will also be included.
Note: Most dealerships will submit your application to multiple possible lenders, including finance companies, banks, and credit unions, to find an assignee who’s willing to finance your purchase.
Your credit application will be evaluated to determine if you are approved for a loan with the proper terms and conditions that make car payments or lease buyouts manageable given your current financial situation.
When you finance through a dealer, you will not deal directly with prospective lenders.
The decision to offer you financing will be based on an evaluation of your credit score, credit report, your completed application, and terms of the sale, including your down payment amount.
- Buy rate: The interest rate that a potential lender quotes the dealer
- Contract rate: The rate which the dealer offers you
If a lender agrees to finance your purchase, it will notify the dealership and give a buy rate, which is the APR the lender is willing to offer.
The dealer then comes to you with a contract rate which is the interest rate you will pay, which may or may not be higher than the buy rate.Tip: Read more bout the difference between interest rate and APR.
How can I improve my chances of getting approved?
If your credit score is too low to apply for a good auto loan you may choose to apply with a co-signer.
A co-signer guarantees your loan by putting their credit score and name on the line. If you don’t pay, the co-signer’s credit would suffer the same consequences as if the loan were entirely in their name.
A co-signer is usually a family member, such as a parent. It’s an excellent way for you to develop credit and improve your credit score.Note: Avoid ‘contingent’ or ‘conditional’ loans, which require you to take on a loan agreement and get the car without the loan terms being finalized. This means that important aspects like the loan terms, interest rate, down payment, and monthly payment sum can be altered, resulting in you paying much more than you expected.
What are peer-to-peer auto loans?
You can’t get a co-signer to help you? There are peer-to-peer car loan websites that can help link lenders and borrowers. Where you would normally apply for an auto loan from a big company or lender, you will now get a loan from private investors with peer-to-peer (P2P) lending.
Following the setup of a profile describing why you need the loan (in this case to buy a car), your credit score will be assessed. If you have a poor or non-existent score, you will be classified as high risk.
Individuals will look over your profile and determine whether to finance the loan or not. If there is enough interest, the loan can be approved and funded, which you can use to purchase a vehicle.
You will repay your auto loan through the P2P platform, and the interest payments benefit the investors. With a higher interest rate, the loan will be riskier for borrowers. The same goes for a poor credit score.
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