5 Things to Think About Before Getting a Vehicle Loan
Getting an auto loan to buy the car, caravan, campervan, or horsebox of your dreams is now easier than ever. Many loan providers will allow you to apply online and receive a decision on the same day.
It’s important to remember that although an auto loan means that you can have the vehicle you’ve been eyeing up sooner, it is also a financial commitment. So there are some things that you should think about before going ahead.
Pay attention to interest rates:
The first thing to think about when comparing loans is the interest rate that’s on offer. The interest rate is the amount of money that you will pay back on top of the loan amount itself, as a payment for the service of administrating the loan.
Generally speaking, you’ll want to look for a loan with as low an interest rate as possible, as this means that you can keep your monthly repayments lower, clear your loan more quickly and have more capital to put towards the value of your new vehicle.
The interest rate is a percentage of the total loan amount, and you pay it back as well as the original loan amount. So, for example, a 5-year loan of $5,000 with a 4.5% interest rate will actually cost a total of $5,593.
Understand your credit score:
Any loan that you are offered will be based on your credit score. The better your credit score is, the better value your loan will be. This means that if you can, it’s a good idea to think about improving your credit score before looking at loans if you want to get the best possible deal.
Your credit score is based on a few different factors, including:
- Payment history – whether you’ve made payments on existing loans on time and whether you’ve ever applied for bankruptcy.
- The total amount owed.
- Length of credit history – people who have been borrowing and paying back money over a long period of time will tend to have a good credit score because lenders can see their track record easily.
- New credit. If you’ve just taken out a credit agreement, this will temporarily lower your credit score, so it’s a good idea not to take out too many loans at once.
Total loan cost:
When you are deciding whether you can afford a loan, consider the total loan cost. This means working out the total amount that you will repay over the term of the loan, as well as what your monthly payments will be.
Auto Finance Online offers an easy checker so that you can quickly see your total costs. This is crucial for loan comparisons and for understanding affordability.
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Think about the length of the loan:
Before taking out a loan, try to think about whether your circumstances might change during the course of the loan.
For example, if you were to lose your job, you would still need to be able to make your repayments. Therefore, it’s important to make sure that you have contingencies in place for situations like this.
Most motor vehicles will depreciate in value over time. Therefore, ensure that you are aware of how your chosen vehicle might depreciate over the term of the loan period, as this will affect how much you can sell it for later.