Purchasing a new car can be exciting: researching your favorite model, adding on the upgrades, and styling it to make it your own. But when it comes to financing a car, much more thought needs to go into how you’ll actually pay for it. Most car buyers choose to finance a car with a car loan because it allows them to purchase a newer or larger vehicle than they would be able to pay for in cash, stretching out the payments over a few years.
When applying for a car loan, there are a few points to consider to ensure you are making the best financial decision for your future.
Used Car Loan vs. New Car Loan Rates
When purchasing a new car, one of the first things to consider is what type of car you’ll be purchasing since loan rates for new or used can vary greatly, affecting how much you can afford.
The average interest rate for a used car is around 6%, while it is 5% for a new car. While this doesn’t sound like much of a difference, it can affect the total amount you pay as well as your monthly payment.
For example, a 6% interest rate for 60 months on a $30,000 used car will have a monthly payment of $580. While the same 60-term for a $30,000 new car with an interest rate of 5% will have a monthly payment of $567, meaning you will pay $780 more over the life of the loan with a 6% interest rate.
Your Credit Score Matters
Your credit score is one of the main factors when qualifying for an auto loan, how much your interest rate will be and how much you will be offered. Better credit can help you get a better interest rate because you can apply for a rate discount, which will affect your overall budget for purchasing a car.
Check your credit score before making a purchase to give yourself time to improve your score if needed or rethink if purchasing a new car is a good financial option at this time.
You can find a copy of your credit report at any of the major credit bureaus: Experian, Equifax, or TransUnion. Your credit card company may also provide you with your credit score for free.
Know Your Budget and Maximum Loan Amounts
Take a hard look at your finances as well. This includes the purchase price and budgeting for your future car’s use and care, such as maintenance, insurance, gas, repairs, and parking. Learn more about the true cost of car ownership.
A down payment isn’t usually required for your loan, but it’s a good idea to put one down. Putting down some money upfront means you will not need to borrow a large sum, and your monthly payment will be lower.
Use an auto loan calculator to determine how much of a down payment you’ll need.
Car Loan Rates Vary By Lending Institution
It’s essential to shop around when looking for car loans, just as when looking for dealerships for your auto purchases. Looking for loans from your current bank and competing banks and credit unions, as well as researching online, can help you understand the typical rates available in your area.
When it comes to the price of the car, shop around at several dealers to ensure you’re getting the best price. If you’re looking for a used car from a private party, request a Carfax report, which details the vehicle’s history, including any accidents.
There are many financing offers for new and used cars.
Pre-Approval Can Help You Find the Right Vehicle
Searching for auto financing before starting your car search might seem backward, but getting pre-approval from auto lenders can help in many ways. Pre-approval can help you understand how much you can afford for your new car and what your monthly payment might be.
Getting pre-qualified means you won’t be surprised by the interest rates you’re offered or if you’re approved. You can address any banking or financial issues ahead of time.
Auto loan pre-approval also gives you leverage at the dealership. If you already know what you can afford and how high you’re willing to go in price, you can try to negotiate with the salesman so you can get the best price or interest rate possible. Let the dealer try to beat or match the rate and terms you already know you qualify for.
Finally, pre-approval brings peace of mind that you got the best loan possible. There’s nothing worse than making a large purchase and finding out after that you paid too much, got a bad interest rate, or that the terms and conditions of your deal are unfavorable.
Car Loan Options with T&I Credit Union
Whether you are applying for a car loan for a new or used car, T&I Credit Union has multiple loan options to choose from. Our new auto loan rates currently include 60 months for rates as low as 3.49%, 72 months for 3.99%, and 84 months for 4.99%.
For auto loans on vehicles 2014 and older, you can apply for a 60-month loan term at 4.75% based on credit approval, but these rates are subject to change, so contact us for our current rates.
Apply for a Car Loan Today with T&I Credit Union
T&I Credit Union has multiple car loan options to help you get into your new vehicle. Speak with one of our loan representatives today to start the loan application process, or apply online for pre-approval to speed up the car-buying transaction.
Call us at (248) 397-9456, send us a message online, or visit us at our Troy or Clawson locations to learn more about your car loan options with T&I Credit Union.