Key to a Great Auto Loan #1: Manage Your Credit - One of the first things you should do before applying for an auto loan is review your credit. All US consumers are entitled to a free credit report, so use this resource. Find out if there’s anything you need to fix. Any errors or bad habits could affect your auto loan rate.
Key to a Great Auto Loan #2: Know How Much You Can Spend - Diligent budgeters already know this, but I don’t run into very many diligent loan budgeters. Track your budget any way you like (Microsoft Money is a good tool or build your own system), and then find out how much your payments might be with the car payment calculator.
Key to a Great Auto Loan #3: Look at the Big Picture - The terms of your auto loan will determine how much you pay now and how much the auto loan costs overall. Remember that a low cost now may not mean low total costs for you in the big picture.
For example, most loan borrowers choose a low down payment because it’s easy to manage today. However, that choice increases the total cost of your auto loan and usually leaves you ‘upside-down’ (meaning you owe more on the vehicle than it’s worth) for years to come.
Key to a Great Auto Loan #4: Consider Insurance - When you ask various loan lenders what they’ll offer you, you may find that you need insurance to get the best auto loans. I’m referring to disability insurance and life insurance at this point. The lender is concerned that something could happen to you and you wouldn’t be able to pay them back.
Having loan insurance might not be a requirement, however you should know all the details if you already are insured.
Key to a Great Auto Loan #5: Shop Around - This is simple but it is often overlooked. The most important point here is that you don’t have to get your auto loan from the dealership. I strongly encourage you to check with a credit union, bank, or online lender. In most cases your car dealer won’t have the best auto loan. By consulting with an alternate loan lender before stepping onto the lot, you’ll be armed with knowledge of what’s fair -- and you may have some bargaining power.
Key to a Great Auto Loan #6: Avoid Prepayment Penalties - Things change in life and flexibility is important. Your auto loan should also be flexible. Find a lender that will allow you to make extra payments or pay off the loan entirely without any penalties. It’s important to read the fine print – some penalties aren’t called “penalties”.
Co-signing happens when somebody promises to back up a loan for somebody else. Somebody may ask you if you’ll co-sign a loan for them. They’re asking you to become legally liable to pay off a debt if they are unable to pay it off themselves. This page discusses co-signing from a co-signer’s perspective.
Co-signing a loan is a generous thing to do. You can help somebody you care about get a loan. Perhaps you’re helping them reach the goal of home ownership, start a business, or get through tough times. This is a huge favor that can improve somebody’s life.
Risks of Co-Signing - While co-signing can be wonderful, it’s also risky. As a co-signer, you take responsibility for the loan. If the loan is not repaid as agreed, the lender will come after you. They’ll demand payment from you and report any problems on your credit reports. There’s a good reason that the lender requires a co-signer in many cases: because the borrower appears likely to default. If you co-sign, you must believe that the lender (who probably makes more loans than you do) is mistaken.
Remember that the borrower doesn’t have to drop off the face of the earth for you to get into trouble. If a single payment comes late, the lender may come straight to you. They follow the path of least resistance – they can call you first if they think you’ll pay sooner than the borrower. However, they might not call you until things get really bad.
If the borrower fails to pay as agreed, your credit can suffer. A loan that you co-sign for ends up on your credit reports – the good, bad, and ugly. Late payments that weren’t your fault will appear as if they were your own problem. You get to choose whether to pay the lender yourself or to let your credit suffer.
We are not affiliated or endorsed by any bad credit auto loans companies.