Getting your first car loan represents a milestone in your life because you are gaining more independence and learning about a financial product at the same time. Getting the right loan for your situation can be trickier than it seems, because there’s so much stuff that the car dealer just won’t tell you. The car dealer isn’t looking out for your interests, of course. That’s why you have to do your homework before you get your first loan. Here are some things that you have to keep in mind about your first car loan.
Know What Loan Will Benefit You
Before going in for your first vehicle loan, you should do research to familiarize yourself with various aspects of the loan. For instance, how quickly do you want to pay off said loan? It is a good idea to think about matching your repayments to the cycle of your salary. Would you consider also making extra payments on an occasional basis? Don’t forget that you may have to withdraw a portion of your extra payments later on, maybe for some car repairs or improvements, so keep that in mind, too. Finally, would be willing to pay exit fees? Knowing your answers will help you decide on the loan you want.
Think About the Associated Interest Rates
It’s also important to determine what interest rate you would be most comfortable with. You can always go with a fixed-rate loan, and such a loan would offer you the advantage of more stability. With a fixed-rate loan, your interest rate is locked in for the duration of the loan repayment period – so you always know what you will be paying. In contrast, you could always choose a variable-rate loan if you want to try for a lower interest rate, but there’s a catch here. Such loans usually come with a bit more risk, so be sure that you choose wisely. Many car loans are variable-rate loans, and that means the interest rate basically goes up and down with the market. These loans are usually expressed with a rate equal to “prime plus” a certain percentage. That means the interest rate on a variable-rate loan is equal to the national prime rate set by the banks, plus an extra percentage that your lender adds on. While you can experience lower rates with a variable-rate loan, you can also experience higher interest rates on your loan if the prime rate increases.
Bundling Your Car Loan Is Also an Option
Before you apply for your first vehicle loan, it is important to realize that it can be to your advantage to shrewdly bundle your loan with other types of loans. This may seem like a complicated option, but it actually is a possibility for many people. For instance, it is possible for you to bundle insurance, improvements and repairs into the final, actual amount of the car loan. Bundling can sometimes work in your favour because the more you bundle together, the more you get to lower your rates.
This is everything you need to know about your very first car loan, which is always an exciting time in every young person’s life. Getting a loan can be a tricky affair, which is why it always pays off to understand all of your options in the process. For instance, something to consider would be how fast you want to pay off the loan. Besides that, you will also have to worry about the interest rates and if you want to bundle your loan with other products. By understanding these nuances of car loans, you can get the most favourable terms possible.