By: Gov Auctions | 8 August 2016
A Guide to Finding The Best Car Loan Rates
For most people, purchasing a car will be one of the largest purchases they’ll ever make. There’s not really much that stacks up to the sheer monetary value of a car in most people’s houses, with the exception of the house itself.
For this reason, the vast majority of people who purchase a car choose to finance their purchase through an automotive loan. Due to how these are calculated, even a 1% increase in the interest rate can lead to a lot of extra money paid down the track, so it’s extremely important to shop around for the best possible option.
Understanding the terms
The first thing you should come to grips with so that you’re not taken for a ride with your new car purchase is the lingo. Most people will know how this works, but people who have never dealt with a large loan before might be floundering a little. Here are some of the basic terms you should be aware of when shopping around for the best car loan rates:
- APR - Annual Percentage Rate; this is the functional interest you’ll pay on your loan.
- Loan Term - how long you have to pay back the loan in full.
- Money Factor - an alternate method of presenting the APR that some places use. To convert it, simply multiply it by 2,400 (so a factor of 0.004 would be a 9.6% loan)
- Credit History/Credit Score - to get pre-approved for a loan, you’ll have to have a certain reputability for the loan party to ensure you won’t default. For most people, this will be fine, but any infringements might prevent you from getting a loan in the future.
Translating it into numbers
The most important figure, at the end of the day, isn’t the APR or the loan amount. It’s the amount that you’ll be paying back overall, and how much each installment will cost. Simply put; it doesn’t matter how good the deal looks on paper if it ends up being more than you can afford.
A short loan (say, 3 years) will generally cost a lot less than a 5 year loan, since you’ll pay much less in overall accumulated interest. You’re going to want to choose a loan that maximises the total repayments for the most that you can comfortably afford per month.
It’s tempting to take out a longer loan, but that just means that you’re going to be burdening yourself with more total debt. Don’t break the bank, but always check the total price against your budget before committing to a loan.
The easiest way to do this is through a car loan repayment calculator. Try not to find one that’s allied with a specific car loan site, as they might be biased towards the company that’s selling it, but for the most part they’ll give you a quick and easy rundown of the total cost that you’ll pay for each individual option.
It might seem like a lot of effort to verify each individual option, but the consequences of not doing so might cost you hundreds of dollars in the long term (or even thousands if you’re financing an expensive car or a long-term loan).
Alternately, you can try out our own car loan service. It’s free to sign up, and in return for your details (which we won’t disclose to anyone, since we go via the Dallas Trading Exchange), you’ll have hundreds of loan companies competing for your business instead of having to seek them out and vet them individually.
It’s still always going to be a good idea to read the fine print, and to verify the cost of each loan, but we’ve made categorising them and delivering them to you easy. Click here to try out for yourself, completely free
Some quick tips
- Your car dealer might recommend a repayment option. Remember that they might not always be looking out what’s best for you! They might be trustworthy, but depending on the structure of the company they might be pushing a sponsored deal or trying to squeeze a little more commission.
- Likewise, don’t fall for flashy extras. Double and triple check you need anything that’s offered. Do you really need all the bells and whistles?
- If you have a bad credit score (you can check with online tools), you’re usually going to have to settle for a higher APR. Luckily, some sites like Auto Credit Express and Capital One specialise in connecting people such as you to non-predatory car loans.
- Check options for both new and used cars. Used cars predominantly have a higher APR, but new cars generally cost more outright. You never know, it might tip the balance!
- 0% interest loans usually come with a price. You should make very sure that you’re saving money overall compared to a similar option from the same company.
A word of advice
Thousands of Americans default on their car loans every month. One of the chief reasons to be so vigilant on the total cost of your repayment is that a failure to pay will put you back right to square one - no car, and less money.
Vet your bills, and form a budget. Find out how much you’re comfortable with paying - and leave a gap in case of emergency! - to get the best rate. It’s a large purchase, and you shouldn’t rush into it blindly.