Auto lenders offer all kinds of car finance options, so selecting the most suitable auto loan can be a difficult process for some car buyers. Therefore, here is a list of several questions to ask to help you select your auto loan.
1. What is my Annual Percentage Rate (APR)? This is the first question you should ask about your car financing because you want to know what your annual percentage rate is. The APR factors in the interest rate and each upfront and ongoing fees and charges. Thus, an APR is an accurate reflection of the total annual cost of borrowing than the interest rate alone. Also, the APR is the most reliable way to compare different auto financing offers.
2. What is my monthly payment? Though a monthly payment should not determine or influence your decision, it is still important to know the exact amount on how much you will be paying each month. If you do not know your monthly payment, you will not be able to accurately analyze and determine whether you can afford a certain car and it makes economical sense for you. Therefore, ask yourself whether you can afford the monthly payment that you are quoted for.
3. What is the total cost of the loan? Even though one car loan may offer a lower monthly payment than another loan offer, the lower monthly payment loan still might end up costing you more in the long term as a result of interest expense. Therefore it is highly advisable to perform due diligence with your lender for the total cost of your car financing. This amount will include all monthly payments you will make over the term of the loan in addition to any fees, charges, and interest included with the financing.
4. Are there any up-front fees? Low price auto financing usually includes certain up-front charges and fees that you will have to pay when you complete your loan. Some examples of such fees include the auto loan application and origination fees. The lender should tell you the exact amount of any of your upfront expenses so that you can budget accordingly.
5. What is the term of the loan? The most common car finance terms are 36, 48, and 60 months, and some auto lenders offer terms as long as 72 months. Keeping the term of your auto loans as short as possible is makes the most economical sense as this will minimize your interest expenses.
6. Are there any prepayment penalties? If you refinance your auto loan in the future, you do not want to face excessive prepayment penalties on your car loan. Ask if there are any prepayment penalties and if there are, how much it will cost to pay your loan off earlier. Inquire if there is an option to pay off your auto financing earlier than the original term period, and if this option is available, how many additional payments are you allowed per year.