Cars we love but loans we hate!
Every car aspirant feels hatred towards car loans. Each one of us loves the automobile but detests the car loan process. And, the reason is simple. Lenders and dealers often confuse car buyers with different loan programs and leave them distressed. But, you don’t have to worry anymore.
Whenever you decide to buy a new car, you must plan for the purchase and understand the different loan program available in the market. This way you will be able to protect yourself from shoddy lenders.
Plan your Purchase
It is very important to plan before choosing a car because it will help you in creating your “Affordability Range.”
Affordability Range = Total Monthly Income – (Total Monthly Expenses + Savings)
If you keep your monthly payments in the affordability range, it won’t create any problem in making regular payments. It will also help you in deciding whether you should go for a used car or a new car.
Make Financial Decisions
After you decide the amount of monthly payments that is comfortable for you, you have to make a few decisions that will help you in choosing the right loan for your dream car.
1. Loan Amount (Do you want 80% LTV or more?)
2. Loan Term (Are you comfortable with a 60-month loan term or not?)
3. Loan Fees (Are you okay with Application Fees, Process Fees etc.?)
4. Down Payment (Are you willing to make down payment and how?)
5. Co-Signer (Do you have someone to co-sign loan contract?)
Understand Different Car Loan Programs
America is the Land of Choice. Car buyers can choose from several loan programs available. Here are the most common financing programs offered by lenders, dealers and online auto financing companies to car buyers:
1. Good Credit Car Loan
A good credit car loan program is available at low rates for car buyers with:
>> Excellent/Good/Average/Prime Credit Score
>> Gross Monthly Income more than $2000 per Month
>> 10%-20% Down Payment/Trade-in
>> A Co-Signer with Good Credit
>> No Past Bankruptcy
>> No Recent Repossession
2. Poor Credit Car Loan
If you are a car buyer with credit score in the range of 580 to 619, lenders will offer you a poor credit car loan. You will receive slightly higher rates than the usual rates. Don’t worry. If you make regular payments on the loan and improve your credit score, you will be able to get better rates in future.
3. Bad Credit Car Loan
These loans are reserved for car buyers with credit scores less than 580. Most bad credit car loan borrowers receive interest rates that are double to those offered to people with excellent credit score. But, all hope is not lost. You can make the loan rates affordable by:
>> Reducing the LTV
>> Bringing a Co-Signer
>> Choosing a Used Car of Lesser Value
4. Sub-Prime Auto Loan
A lender may approve you for a sub-prime loan if your credit score is anything but good (lower than 620). There are few lenders who don’t differentiate between bad credit buyers and poor credit borrowers. They simply categorize them as borrowers with sub-prime or non-prime credit ratings and so, offer them sub-prime loans.
5. Zero Down Finance
Zero down finance is the name of the program that lenders approve without asking for down payment. This loan program is available at slightly higher costs because the lenders assume higher risks by providing a loan with higher LTV.
6. No Co-Signer Car Loan
The loan program is usually provided to car buyers with good monthly income and higher down payment. You must remember that both the things reduce lender’s risk and so; he/she will not have any problem in approving your loan application without a co-signer.
So, these are the common loan program offered by the lending agencies. Whenever you go out to obtain a loan for your car, ask the lenders about all the different type of programs available with them. Choose the one lender that offers you multiple loan programs because it will give you the power of a favorable choice.