Car Loan for dummies: Auto Loans Explained

Car Loan for dummies: Auto Loans Explained. Whether you have taken on many car loans or this is your first one, this guide will help you get the basics right! Everyone enjoys choosing a car. Reading the reviews, checking the stats, top speed, how it behaves on corners, fuel consumption, most of us find that fun. However choosing the right car loan, well that is different. We don’t want to waste time looking into boring details like interest rates, loan tenure, securities, credit scores and checks. Just too boring! Maybe so, but a little boring research might be the difference with you being able to afford a car or not. Or the difference between a Hyundai and BMW.

So what are the basics of auto loans? Well the more you learn the better chances you have of getting a good deal, but you can’t go without knowing about these basic facts. Interest rates, variable or fixed; security, yep that’s what the bank wants from you; credit checks and how to get yourself approved.

Let’s get started!

Interest rates, variable or fixed. This question is often answered for you. With personal loans with little or no security are generally with variable interest. However sometimes there is the option of having a fixed interest car loan. This is nice if you have a steady income and like to budget, nevertheless you will pay for the privilege with higher interests.

Variable interest rates vary depending on the market. Understanding why they change and how to predict these changes is an art form that as  the current economy proves bountifully nobody has quite got right. Variable interests will change the cost of your loan depending on the current interest rate. Many short loans will guarantee a fixed interest like credit cards, however these fixed interests are very high, up to 16% or even higher.

Security for your loan is what you promise to hand over to the bank if you can’t meet your payments. In car loans this is normally the car itself. Often however the lending company will ask for extra security to protect their investment as cars lose value faster than you can pay for them sometimes. That’s why it’s clever to keep in mind how the car you want to buy keeps it value. It might look pretty and be your favorite color but if it’s not going to be worth half you paid for it in a year it might get you into trouble.

Credit checks are what lending companies do to find out if you’re a reliable customer. They will see how you’ve behaved with previous loans. Did you pay on time, did you miss a payment? All these questions are written in your credit history. It is wise to keep your credit history as squeaky clean as possible as you will get VIP treatment by banks and lending companies which will offer you the cheapest rates.

So if you’re going to buy a new car, spare a few minutes from your glossy magazine and do some research on the current interest rates and best offers on the net. You won’t regret it!