Financing is an important part of most car buyer’s purchases, and the terms of the auto loan can have a strong bearing on how you feel about the overall buying experience.
Understanding the different factors involved with these loans will enable you to plan for an application and consider any offers you receive. Here are some important factors to know about when applying for an auto loan.
1. Credit Score
Your credit score is based on the credit history found in your credit reports and sums up how reliable you are with repayments. It’s a reference for institutions looking to give out loans and helps to determine how much money they will be willing to lend and what conditions the loans come with, such as rate of interest and monthly payment.
2. Debt-to-Income Ratio
Lenders can also assess your ability to take on new debt through a debt-to-income ratio. This ratio measures of your overall debt compared to income. A borrower with a high debt-to-income even with a high income, has a chance to get a lower loan amount and less favorable terms than they would otherwise receive.
3. Size of Initial Payment
The money you initially pay can have a big effect on your loan. A down payment can be used to reduce your total loan amount, which means less risk for the lender. It is also less likely for you to stop making payments and risk losing the car. In most cases, the larger the down payment and the lower the loan amount, the lower the interest, and the more favorable the offer will be.
4. Length of Auto Loan
The amount borrowed will be divided into monthly installments that will be paid back over a set number of years. The length of that period will dictate the size of your monthly car payment. For example, if a car buyer with a $20,000 loan, 60-month term and 6 percent APR they would end up with a monthly payment of $387. If they were to increase the length of the loan to 72 months, the payment drops to $331, although total amount of interest charges will increase. Car loans typically range from three to seven years, with six years being the average, and the longer loan’s terms, typically come with higher APRs.
5. Year of Vehicle
Another factor of an auto loan is the year of the car. New cars are typically associated with lower-rate loans than used cars. The reason for this is because of lending risk. In the event of a repossession, a new car has a higher resale value, enabling the lender to recover more of the money that they may have lost.
Get Auto Loan Financing that Suits You the Best
Along with the factors that are listed above, the choice of lender will also affect a buyer’s auto loan and their purchase process. The Family Credit Union has vehicle loans available for new or used autos, boats, motorcycles, or recreation vehicles. If you are in need of an auto loan, contact one of our professional staff today for more information. To keep up with the latest from The Family Credit Union, follow us on Facebook!
