After processing many applicants at J.J. Best Banc & Company, few people realize there is a lot to consider before auto financing. If you have poor credit, the list gets even longer and the options fewer. Before making the decision to car finance, consider all the factors and how they work for you. When considering auto financing there are Important things to know including interest rates, loan terms, credit pulls, rate shopping, gap insurance, taxes and fees.
Factors to consider:
- Interest rate.This depends on the term of the auto financing, type of car and your credit score.
- Loan terms. It can range from 24 to 84 months.
- Credit pull.The financing agent may do a “soft pull,” for pre-approval, which doesn’t affect your credit score, but when you apply for the loan, they will do a “hard pull,” which is a complete credit check, which initially takes points off your score.
- Rate shopping. Apply for pre-approval from several lenders to see the rate options.
- Some lenders only work with specific dealerships.
- Some lenders don’t finance classic/collector cars.
- Down payment. Money you put toward buying the car that you don’t finance. The bigger down payment, the less your auto financing will be.
- Gap insurance. Insurance you buy from a dealer or bank that closed the gap between what you owe on the car and what the primary insurer thinks it’s worth.
- Funding. An offer for the maximum auto financing you can get at the best interest rate. It can go right into your bank account or be a certificate that goes to the dealer.
No matter what your financial situation is, the goal should be to pay the lowest amount possible over the entire term of the car financing period.
“At J.J. Best Banc we recommend to not agree to a super-low monthly payment if you can find a way to pay more”, says Brandon, Loan Officer. Most people keep a car between five and seven years, and the average life of a car is about 11 years. Those numbers are especially important if you’ve financed a used car, even certified pre-owned ones. You don’t want the loan to outlive the car, or to pay for gap insurance, adding to your costs. Keep in mind you can always refinance once your credit score has improved.
Budget for a Monthly Payment
Figuring out the auto financing before you visit dealers includes calculating your monthly budget and deciding how much of it can go to a car payment without short-changing necessities like housing, food, an emergency fund and retirement savings.
“The 20-4-10 rule is a good place to start on what to pay for a car. It means a 20% down payment, four-year loan term (plus vehicle expenses like the monthly payment, car insurance, gas and maintenance) that is no more than 10% of your gross income”, says Graham, Loan Officer at J.J. Best Banc. “And, don’t forget your car insurance payments. The more expensive the car, the higher the insurance.”
Most states require a certain level of insurance in order to register the car. If you finance a car payment, in some states the lender will pay for collision insurance for the life of the loan, but they’ll charge you for it. Also, keep in mind that 27 states charge vehicle excise tax, paid yearly, based on the car’s value.
Ready to Apply for a Car Loan?—Apply online at JJBEST.com or call your personal Loan Officer at 800-USA-1965. We look forward to servicing you.