Car Loans

According to the latest government statistics, the average new car today goes for about $30,000 in the United States, with a new car loan averaging around $28,000.  Buying a car involves a lot of money, so anytime a buyer is looking for a car loan, shopping around can really pay off.

Car Loan Choices

In order to make the best financing decision possible, it's important to understand your alternatives to obtaining a car loan.  Admittedly, you can always decide to lease at car rather than buy a car.  We've already covered the topic of leasing a car versus buying a car elsewhere in this publication.  Today, we are going to limit the discussion to car loans.

Buying a New Car

The process of buying a car is fundamentally a two-part process:  choosing a car, and deciding how you're going to finance the vehicle.  We're not going to pass judgment on which part of the process should be completed first.  Our intuition tells us that many people start by deciding on the type (SUV, minivan, sedan, pickup truck), size (large, midsize, compact)  and price range (luxury versus standard) of vehicles they'd like to buy, avoiding the financing decision until a later date.

If you start this way, then you could be disappointed to learn you cannot afford the car loan you need to buy the car you've chosen.  Our suggestion is to first figure out how much car you can afford, then figure out which cars fit that budget.

Shopping for a Car Loan

If given the time it deserves, shopping for a car loan can take nearly as much research as deciding on the vehicle to purchase.  A 48-month car loan of $23,000 at 5.5% costs $535 per month, while the same loan at 7.5% costs $556 per month.  Now $21 per month might not sound like a lot of money to someone spending $30,000 on a new car, but it really adds up over the life of the loan.

If someone paid you $1,008 ($21 x 48 months) to make a couple of telephone calls, you'd probably make those calls.  So what exactly are your financing options for a car loan, and where can you go to find the loan?

Internet Car Loans

If you've found this article, then you're already online.  The Internet is a great place to begin the process, get a feel for what are good interest rates on a car loan, as well as gain a better understanding of what might be considered generous contract terms.  We have an entire article dedicated to the topic of online auto loans.  If you want to learn more about that subject, then reading that article is a must.

Banks and Finance Companies

If you had problems making all your monthly payments on time in the past, your credit rating might not be as high as it would be otherwise.  Don't feel alone, about 60% of car buyers are considered subprime from a lender's standpoint.  It's easy enough to find a finance company right in your own telephone book.

If you've established an account with a local bank, then you might want to stop in the nearest branch office and ask about car loans.  This is the type of business they want, so their rates should be very competitive.  In fact, you can probably find a good deal of information on local interest rates in a regional newspaper.

Car Dealerships

Securing a new car loan at a dealership is probably the most convenient option that you have, and sometimes it is also the best one you can find financially. Dealerships often know about special rates offered by car manufacturers.  They also have the technology to approve you right on the spot.

But you need to be careful when shopping for a loan at a dealership. Sometimes an advertised rate only applies to certain cars, or for loans that are short-term such as 24 months.  That type of arrangement doesn't always suit everyone's needs.

You also have to be careful about dealerships that "bundle" the deal too tightly.  For example, a dealership tells you the monthly payments, but refuses to tell you how much you're paying for the car (principal) or the interest rate on the loan.  In situations like this, you might want to walk away from the deal.

Credit Unions

Most credit unions are not-for-profit organizations, which can give them an edge in writing new car loans.  Since credit unions are established to solely provide services to their membership, they only need to cover their operating costs.  If you are lucky enough to belong to one, or if your place of employment has one, it doesn't take much time to check out their offerings.

The government has made it easy for consumers to compare loans by requiring all lenders to state the Annual Percentage Rate (APR) on a loan. Included in the APR are all the true costs of the loans such as application and processing fees.  As you evaluate your options, the APR is the most important number to compare between offerings.

Finally, wherever you decide to get a loan, make sure to ask some basic questions such as the process for early payment or prepayment of the loan, late payment penalties, and their privacy policy.

Car Loan Calculators

If you're shopping for a new car loan, then you'll want to be prepared with some tools to help you evaluate each loan.  That's where our online car loan calculators can come in handy.  With nearly a dozen different calculators, there's no doubt you'll find one or more of these tools to be extremely useful.

About the Author - Car Loans

Bill Sharlow is the Editor of Money-Zine.com.  Copyright © 2004 - 2011 Money-Zine.com