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Auto Financing 101 - Getting A Car Loan
By EchoBay Loans Staff Writer

If you're new to the world of auto financing, your head is most likely spinning. You probably had no idea that car loans could be so involved or so complicated. It's okay; take a deep breath and relax. You don't need to flail in the dark since your auto loan education is about to begin.

The first step in the auto loan process is determining what types of companies you can turn to for your auto financing needs. There are numerous lenders available to choose from, and the state of your credit will determine which lenders you should look to for your auto financing needs. Credit unions and banks traditionally deal with A and B credit lending needs and offer lower interest rates. If your credit is in good shape, you may want to fill out an auto loan application at one of these financial institutions.

Sometimes, getting your car loan directly through the dealer is your best bet. This is especially true if you are purchasing a new car and the dealer or manufacturer has arranged for low or zero percent auto financing on the make or model you are purchasing. If your credit has suffered some dings and dents you probably won't qualify for low-interest financing, but the car dealer can help you as well. They're in the business of selling cars, and if they can't get you financing, they're losing a sale.

Car dealerships know this and most dealerships work with a few sub-prime lenders in order to help car buyers with less than perfect credit obtain an auto loan. This means that even if your credit is less than ideal, you can get the financing you need for the vehicle you want, although it will usually be at a higher interest rate.

Consumers who are shopping for new and used cars should also look into financing their vehicles with an online lender. The application process is virtually painless and the processing time is generally very quick. Online lenders have been known to offer very attractive interest rates and by looking online, regional restrictions will practically be eliminated.

When choosing a lender, don't strictly choose based upon their advertised auto loan rates. Because lending institutions base the interest rates of their car loans on a number of factors that are specific to each individual borrower, you may not qualify for the rate that you saw advertised. Just because your best friend purchased the same car and financed it with the same lender at a 5 percent interest rate, does not mean that is the rate that you're going to pay. In fact, your rate could be much higher depending on your credit history, your income level and your debt-to-income ratio.

If you're looking to get the best interest rate possible, if you have damaged credit or if you want to keep your monthly payments to a minimum, you're going to want to have available a sizeable down payment. Most car buyers will put at least 5 percent down when they purchase a car. It's important to remember that for every $1,000 you put down on your car, your car payment will be reduced by approximately $50 each month. Sometimes car dealerships promise to get you into car loan with little or no down payment. While this may sound appealing at first, you really need to ask yourself whether or not this is a good choice in the long run.

Also remember that your down payment doesn't always have to be in the form of cash out of your pocket. If you have a car you're trading in or if the dealer or manufacturer is offering a rebate incentive, you can apply those towards your down payment requirement. If you are trading in a vehicle, make sure you carefully examine the numbers and that the dealer is really giving you a good deal rather than playing with figures. If you still owe money on your trade in, your dealer may try rolling the balance of the trade into the new loan.

Don't fall for it; this can wind up costing you dearly in the long run. If a dealer is offering the choice between a cash rebate or financing with low or zero-interest rates, the cash rebate is usually the better choice. Many consumers won't qualify for the low-interest offers. Unless you have perfect credit and unless the dealer is offering zero interest financing over the life of the car loan, taking the rebate and applying it towards your down payment will normally save you the most money.

After you decide where you'll be financing your car and how much you'll be putting towards your down payment, you'll need to take a look at the different lengths of car loans that are offered. Traditionally, companies that offer car loans will finance a car for anywhere from 12 to 72 months, although some companies have been offering car loans for up to 84 and sometimes even 96 months. While a 96-month auto loan may seem like a great way to keep your car payment to a minimum, it's also the best way to get yourself turned upside down on your car loan

If you decide to sell your car a couple of years after you purchase it, chances are good that you're still going to owe more on the car than what the car is worth and you're going to have a hard time trying to sell it. Do yourself a favor and finance your vehicle purchase over the shortest possible time, while still being able to afford the monthly payments.

Knowing the auto loan ins and outs should help you to find the auto financing options that are right for you. By knowing what can save you money and what will cost you money in the long run, you'll be able to make an informed decision on which car loan you accept when it is time to finance your vehicle purchase.

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