The relation between auto finance and automobile is typically similar to each other. Both have complicated components that make the machine work and most of these components are hidden from your eyes.
It is these components that you should care for and be concerned of. However and unfortunately, most of the people typically understands the basics of car maintenance but have a very little or no knowledge about auto finance.
Apart from the components there is another thing that is very much common in a car and a car loan. Most of the people consider both of them as an indispensable thing to their lifestyle.
- According to the reports of the Consumer Finance Protection Bureau, CFPB it is found that about 90% of Americans go to their office in their cars.
- Apart from that according to the reports of Federal Reserve it shows that the figures in 2015 revealed that the total amount of car loan debt in the US is more than $1 trillion.
In other words, it means that people are highly reliant on their cars as well as car loans. It is this type of dependency that typically leads to the situation when the car dealers and especially the auto financers take advantage of the consumers, if they are not well informed.
There are some basic issues that may arise when you do not know much about car financing from a bank or from any other sources such as Liberty Lending. Here are a few basic points to consider so that you can avoid such issues when you buy or lease a car, starting with car financing.
Money to put down
You must know how much money you need to put down when you are inclined to take out a car loan. Typically, today you will come across alluring phrases such as ‘Zero down payment’ or ‘Zero percent interest.’ These terms are very alluring to the consumers and very popular among the car dealers. However, you will need to know whether or not it is aimed at the best of YOUR interest or theirs.
- It is better to pay a substantial and affordable amount as down payment because you will eventually be paying much less as interest in the loan run on your loan. It is therefore better to build a savings account to create such a fund.
- Another significant point to consider is the depreciation factor. Usually, new cars will depreciate rapidly as soon as you drive out from the showroom. That means, you will be owing much more than the actual worth of the car for a while if you do not make any down payment.
All these means, that in case your car is stolen soon and totaled in an accident, you may not get enough from the insurance company to pay off your entire loan balance.
Term and rate
These are the next two most important things to consider when you are taking out a car loan as a lot will depend on these two specific factors to calculate your monthly bills on your loan. The length of term or simply the tenure of your loan will usually spread across three years but nowadays it is seen that the auto loan terms are getting longer and longer.
- Though this means that you monthly bills will turn out to be significantly low over the entire life of your loan but on the other hand it will also add to your interest expenses in the long run. This means, your loan will turn out to be costlier than you expected.
- When it comes to considering the loan terms you must be very careful specifically if you buy a used car. These cars usually have a shorter useful life. That means, if you are not careful you may end up taking out a loan that will outlive your car.
When it comes to the interest rates on your car loan be informed that it may vary from car to car, from one type of loan to another, and from one lender to another as well.
Leasing versus buying comparisons
If you are caught between leasing and buying a car, then there are a few comparisons to make so that you can arrive at a fruitful conclusion.
- First you will need to consider the true cost of owning a car. For this you will need to consider the depreciation in a value of the car. This is the key element to compare that will help you to choose between leasing and buying. When you take out a loan consider the cost of initiation as well as the cost of maintaining the lease. If you want to sell off the car at the end of your lease you must consider the loan payments as well as the probable value the car would lose over the lease term.
- Second, consider the value of the same car when you took out the loan and at the time when you want to sell it at the end of your lease. Calculate the percentage decline in value of your old car and the value of the new car you want to buy today. This will show how much you will lose at the end of the term by buying the car.
Therefore, make sure that you shop for your loan and compare different lenders before you settle for a particular lender and a loan offer. In addition to that, you must also consider the fact that the rate of interest will be higher for loans that have longer terms. Best thing to do is to take out a shorter loan.