4 Considerations When Shopping for Car Loans
Many people prefer to use dealer financing when they are buying a used car. How can such people know that they got a good deal? The considerations below can help you to assess whether the dealer's financing is right for you.
The Down Payment
You need to ask the dealer how much money you are expected to raise as a down payment for that used car that you wish to buy. The best financing deals require you to put up a minimal down payment. Such deals are good because they reduce how much cash you need to have at the time when you are purchasing the car.
The Loan Term
You should also find out how many months/years you will take as you make monthly payments to clear the car loan that you obtain through the dealer. Longer loan durations may not be good for several reasons. First, the used car may depreciate so much that its value will be less than the amount of money that you still owe the lender. Secondly, longer loan terms can increase the total cost of acquiring that used car since you will pay more in interest for those many years that you spend paying off the loan. Negotiate the shortest loan term possible.
Negative Equity Handling
Some people who want to trade in their current vehicle to buy another one can be told that the outstanding loan on the old vehicle is greater than the value of the car. This situation is called negative equity. The dealer has several ways to handle the negative equity on your old car. First, they may ask you for a higher down payment to offset the negative equity. Secondly, the negative equity can be included in the loan that you acquire for the used car which you wish to buy. Weigh the options that the dealer gives you regarding the negative equity and decide how to proceed. For example, you can sell your old car on your own in case you can raise more money than what is indicated as its value by the dealer.
The Monthly Payment
The monthly payment on your used car loan depends on several factors, such as the total amount of the loan, the interest and the duration you will take paying off the loan. It may be better for you to select financing with affordable monthly payments as long as the factors discussed earlier favour you.
Contact a lender to learn more about your used car finance options