Whether you want a reliable sedan, a motorcycle, or an RV to travel the country, purchasing a vehicle can be exciting but intimidating. Most people new to purchasing an automobile will choose a financing option, or auto loan, to help them buy their car. Understanding how car loans work can be a big step forward for you if you want to purchase a new, nice vehicle. Read all about it here!
How Car Loans Work
Where can you get a car loan?
Most of the time, you have three options for where you acquire an auto loan: 1) the dealership, 2) online, and 3) through your bank or credit union. Getting a loan from an auto dealership is convenient for many, but these loans often have larger interest rates. You can shop around online for loans, too, but they come with a higher risk, as you don't truly know the lender. Acquiring a loan from your bank or credit union is arguably the safest choice for you, and they have more flexible rates than a dealership would.
What are interest rates?
Understanding how interest rates work is a big part of understanding how car loans work overall. As with any loan, your car loan will come with an interest rate—additional money you'll pay over time in exchange for the loan itself. You, of course, want the lowest rate possible. There are a number of factors that will determine your interest rate:
• Your credit score. Your own financial health plays a large role in how much interest you'll pay. If you have a poor credit score, your lender considers that a bigger risk for them, so your interest rate will be higher.
• The length of the loan term. Most car loans last between two and eight years. Loans that are shorter often have lower interest rates, because the lender gets their money back more quickly. Longer loan terms, conversely, usually have higher interest rates.
• The down payment. Simple enough: the more money you pay up front, the lower your interest rate will be.
• New car vs. used car. Used cars are considered a bigger risk, since they already have some wear and tear on them. This means they'll likely have a higher rate than a new car.
Keep in mind that while any financial institution has flexible rates for those seeking a loan, credit unions usually excel in this area. They have fewer stiff regulations
on lending, so they are able to offer lower rates to their members.
Paying off your loan.
Once you and your lender have set the length of your term and you understand your interest rate, you will begin making regular payments to the lender to pay off your loan. You can usually lower your interest rate and/or shorten the term length by making additional, unscheduled payments and accelerating your loan payoff.
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Now you know how car loans work! Did you know BluCurrent Credit Union
offers its members car loans
? If you're interested in joining our organization, know that we provide a wide variety of financial services in addition to auto loans. With our two locations in Springfield, one in Nixa, and online/mobile banking, we make it easy for you to take care of your finances. Plus, we offer nationwide ATM fee refunds with our checking accounts! We'd be happy to get you more acquainted with our organization, so feel free to stop by one of our branches or explore our website
. We can't wait to meet you!