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 Car Loans

Before your apply for that car loan

Buying a new or used car is hectic enough without having to make a decision about how to pay for it.  With Zero-percent auto financing, rebate offers, down payments, bank financing, dealer financing and balloon auto loans, there are many car loan choices to consider when purchasing a new or used car.

Review your current credit report before you apply for a car loan. A credit report is a summary of your financial trustworthiness.  It’s important to see your credit report before applying for a car loan in case you need to correct any errors that might prevent you from getting the best possible car loan terms.

Shop for a car loan before you visit a dealership or bid on a car over the Internet. Contact your bank and several other local and online lenders.  Find out what kind of car loans they offer, number of months for which you can borrow, the interest rates being offered, whether there are penalties if you pay the loan off early. Ask about other options for financing the car as well.

Traditional Car Loans

Whether you are buying a new or used vehicle, a Traditional Auto Loan is sure to provide convenient and affordable financing for your car purchase. Rates and Terms are sometimes based upon the Model Year of the vehicle being purchased and the credit history of the person applying for the car loan. Traditional car loans generally finance up to the retail value of a vehicle.

Balloon Car Loans

Balloon car loans are used when the buyer desires a lower monthly payment in exchange for a large balloon lump sum payment made at the end of a car loan.  In exchange for this large final payment, the person taking out the can reduce the initial amount of cash which must be put down obtain a lower interest rate throughout the life of the loan and make smaller monthly payments during the car loan.

Balloon car loans are ideal for those with good investment sense, and the ability to wisely manage and ration their spending. By freeing up capital that can be dedicated to paying down higher interest rates and making larger payments, a balloon loan gives a savvy investor the opportunity to use that capital to save money.  Balloon car loans make a lot of sense for individuals expecting a financial windfall at some point in the future. This might be due to a tax refund, inheritance, or an expected dividend.

Home Equity Car Loans

Using the equity in your home may well be the best way to lower your interest payments when financing a car. Both a home equity line of credit and a home equity loan often provide lower rates than traditional car loans because they are secured against the value of your home. The interest on home equity line of credit is also typically tax deductible if you itemize it on your tax return. A home equity line of credit often has the lowest initial interest rate but, because its rate is variable, it can leave you vulnerable to the possibility of increased payments should rates rise. It’s therefore often considered more suitable for car loans of 3 years or less. For loans over 3 years, a fixed-rate home equity loan that has a guaranteed rate for its entire term should be considered.

It’s important before choosing to secure your car loan against your home to recognize the risks involved with this type of car financing.  Since you’re using your home as collateral, you need to have the discipline to make all the payments punctually or you could end up in a situation of having to sell your home.

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