Have you found your dream car? Unless you have bags of cash hidden under your bed, you will probably need a car loan to pay for that very big ticket purchase. A car title loans is a way for you to purchase a new or used vehicle. You borrow money from a lender and pay them back over time, with interest of course, that is how lenders make a profit on the money they lend you.
But when do you really need a car loan? Can you just apply for it without worrying about possible risks? Do you need to get a vehicle through it? To help you out, we have rounded up some practical tips and information that will help you decide whether you should get a car loan or not. Read on!
- The Basics of a Car loan. Knowing the basics of a car loan is a major guideline if you will choose to get one. The fact that car loans include interest; you should know beforehand how high the interest would be. Most often, the amount of the interest rate is a certain percentage of the loan principal. For instance, if you borrow $20,000 with a 5 percent interest rate, you’re going to end up paying $21,000 over the life of the loan. You will also pay taxes and fees, so make sure you take into account all the expenses associated with owning a car when you sit down to determine your budget. This includes insurance, fuel, maintenance and repair costs.
- Credit score. You should know what your credit score is before deciding or even applying for a car loan. Credit score is a number that credit bureaus assign to you based on how much debt you have, how good are you as a payer, how long you have been using credit and your debt to income ratio. If your score is low, lenders will mostly conclude that you will have a hard time in paying the loan. While some would consider your application, you can expect that they will charge you more with the interest rate to cover that risk. To avoid such case, improve your credit score before getting an auto loan. Pay your bills on time for six to nine months as it will bring your score up. Once your credit score becomes good, you can then consider a car loan.
- Calculate. It is also best that you do a little math. Do a little introspection and think about how much you can spend and what loan term can you afford. Be honest to yourself in identifying how much would still be left from your monthly salary after deducting the necessary expenses such as electricity bills, foods, etc. This will help you figure out whether you can sustain paying for a monthly loan or not.
- The car. While Ferrari and Porsche are everyone’s dream cars, getting them while on tight budget just don’t make sense. It is best to get a vehicle that suits your pocket and would still meet your standard. Try comparing prices and models by visiting automobile companies or take advantage of what the internet can offer. Use online database of cars wherein you can check different brands and models, their specs and prices. Most often, auto loan calculator is available on websites that would give you an idea of your monthly payments when you choose a specific car. This will help you decide even more whether getting a car loan is a necessity.
- Car Loan term. The length of the car loan or loan term simply refers to the amount of time you have to pay the lender back. If you sign up for a five-year term, you will certainly pay the money back in five years and will own the car free and clear. However, the loan term doesn’t mean that five years from now you will have to come up with all of the money. The vast majority of auto loans are repaid in monthly installments, which you send the lender a set amount each month and slowly pay off the loan with corresponding interest.
- The lender. Never get a car loan from a lender that refuses to give you a clear picture of your mortgage. Most often, this will only lead you to a bad financial situation in the future. You should be smart in choosing a bank. Do a background check and make sure that they are stable and credible. Talk to one of their financial advisors or representatives and ask relevant questions. Unless you find a reputable lender, don’t rush in applying for an auto loan.
While many borrowers think that they already own the car after being financed by a bank; that is not always the case. If truth be told, the lender is buying the car and letting you use it. The lender technically owns the car, though you agreed to be responsible for it. In most situations, once a borrower fails to pay the loan as agreed upon, the creditor has the right to take possession of the car and sell it to get the lent money back. In other words, the vehicle will serve as collateral. This is actually their way of securing themselves as they always put money on the line.
Hence, it is only a must that you consider every aspect of a car loan before making a final decision. If you think you are ready and would qualify for a loan term without so much interest rate to bear, then go for it and start driving your dream car. Otherwise, take a pause and assess your financial situation. Keep in mind that a loan will be added to your monthly dues. If you can’t afford paying for it on time, it will only make your financial status worst.
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So what do you think? Should you get a car loan now? Think smart and be financially-wise!