When applying for financing at an auto dealership, you are likely to receive offers for several different auto loans. In most cases, the better your credit rating is, the more offers you can expect to receive. When comparing these different auto loans in order to determine which loan offers the best terms, there are three factors that you will always want to consider. You can learn more about each of these factors below.
#1: Interest Rate
Perhaps the most important factor for you to consider when comparing auto loans is the interest rate that is associated with each loan. This is so important because the higher the interest rate is, the more you are going to pay for your vehicle in the long run. However, this does not mean that the loan with the lowest interest rate is always the best option. This is because a lower interest rate over a longer period of time can still end up costing you more. Therefore, you will want to consider both the interest rate and the total amount of interest paid over the life of the loan.
#2: Early Payoff Penalties
Many people purchase a vehicle with the intention of trying to pay off their auto loan in a shorter amount of time than is required. After all, the faster you are able to pay off this loan, the faster you will be able to eliminate the cost of a monthly car payment from your budget. Unfortunately, some auto loans will assess penalties if you choose to pay them off early. In some cases, these penalties will offset any savings you may enjoy on interest charges by choosing to pay your loan off early. That is why it is important to ensure you choose an auto loan that does not have any penalties for paying the loan off earlier than required.
#3: Length Of Loan
Often times lenders will attempt to make their loan more attractive by offering a lower monthly payment over the course of a longer loan term. While this may not seem like a bad thing at first, the fact is that you will often end up paying more for your car in the long run when choosing this type of auto loan. The reason for this is that the longer the loan term is, the more you are going to pay in interest. Consequently, you will always want to choose the shortest loan term which offers a monthly payment that you can realistically afford.