Which Car Financing options do I have for my Auto Loan

Which Car Financing options do I have for my Auto Loan? If you are planning to purchase a car this is THE question you want to ask yourself. Too many people just get the first car loan they are offered and pay dearly for it. Buying a car is a costly operation, probably one of the most expensive purchases you will make after your home. It is therefore financial suicide to go into it without some planning and smart thinking. The options you have are dependent on your personal circumstances. When we say personal circumstances we mean, a) your cash flow, b) your credit history, c) what security you can offer to banks.

A) Cash flow. A good place to start when working out your financing options is how much you can afford to pay monthly. This will put a top limit on your purchasing power and assure you don’t overspend. It is wise to make sure your absolute limit for your monthly payment is a little higher than the limit you set for yourself when purchasing your car loan to allow a little breathing space for interest  rate change.

B) Credit history. Your credit history provides banks and lending companies with a basis on which to set a score. This score, your credit score, will determine if banks will offer you loans and if they do so at what interest rate. If you have a great credit score, up there in the 700 to 900 + you are going to get a good deal from your car financing company. If on the other hand you have a low credit score 300 - 500 then you will pay a higher interest rate for the privilege of having a loan. It does not mean you will not get a loan, it just will be a little more expensive. There are various ways of improving your credit score, like paying your credit cards on time, not maxing out your credit scores and getting out home equity lines of credit. As we said, buying a car may very well be one of your largest purchases, it is worth planning for and taking into consideration your credit score.

C) What security can you offer? Even if you have a terrible credit score you might be able to counteract this with offering your lending company or bank good security for your loan. Your basic security will be your car, if you don’t pay you lose your car, simple. It is worth buying a car that does not lose value too quickly and that is easy to sell. You might also offer other goods  as security, like another car, your home or a frozen bank account. A frozen bank account is jargon for a bank account with a set amount of funds that you promise not to touch until you have paid for your loan. This technique is often used with people with a bad credit score which are trying to build up a better credit history.

As you can see your financing options are many. Think twice, think smart and find a great financing option for your car loan.