Auto Loan Basics
Buying a car is a big decision. It may in fact be the largest purchase you make until you buy a house. In addition to mileage, fuel efficiency, color, and style, you need to think about how you will pay for your new ride.
Depending on the cost of the car you have your eye on, you may need to borrow money to make the purchase. With a little research and understanding of auto loans, you can make this BIG purchase with confidence.
Age Requirement
You must be at least 18 years old to get a loan on your own. Under 18? You will need a cosigner.
Loan Approval
Before you shop, you can apply for a loan. Getting pre-approved will ensure that you know the maximum amount of money you can borrow. It will also allow you to compare the interest rates from multiple sources.
Down Payment
Having money to put down on a car purchase is not always required, but is a great idea, especially if you have been saving. It lowers the amount you need to borrow and will decrease your monthly payment.
Credit History
Upon turning 18, your credit score will help decide whether you’ll be approved for an auto loan, the amount you can borrow, and the interest rate you will pay for the loan. Most teens don’t have much for a credit history, so a cosigner may be required.
Length of the Loan
Most car loans offer three-to-six-year terms and are typically expressed using months, such as 48 months (4 years). The shorter the loan term, the higher your monthly payments will be. The longer the loan term, the more interest you’ll pay over the life of the loan.
Interest Rate
The cost for borrowing money to purchase a vehicle can depend on your credit as well as the year of the car you purchase and the amount of the loan.
Remember, monthly loan payments are just ONE expense of owning a car! You will need to budget for gas, insurance, and maintenance.
