Auto loans are an essential part of the car-buying experience for many drivers. The average price of a brand-new vehicle in 2024 was more than $47,000. Often, auto shoppers don’t have that chunk of cash sitting around. Those who do typically do not want to use it all to purchase a new car. The best auto loans make it easy for you to pay for your vehicle through monthly installment payments. However, not all loans are the same. What should you know before taking out a car loan? In this PDS blog, we explore all things auto loans.
Auto Loans, Explained
In 2024, the average loan payment for a new vehicle was more than $700. For a used car, the payment is roughly $525 per month. Monthly payments are determined by three elements. These are the initial loan amount, the interest rate, and the loan term. The good news is that you have some control over each of these elements.
Principal Loan Amount
The principal loan amount is not typically the sticker price or list price for the vehicle. There are fees associated with buying a vehicle, such as taxes, title, and license, that are combined to the purchase price. Your loan amount will be the total cost and fees minus the value of your trade-in vehicle and your down payment.
Interest Rate
The interest rate varies by bank or lender. It also varies based on the loan amount, the vehicle’s age, if the vehicle is new or used, and other factors. Finally, your credit score plays a significant role in the interest rate. It’s helpful to pay down high-interest credit card balances and improve your credit prior to applying for a new loan.
Loan Term
The loan term is the length of the loan term. Longer loan terms are usually available for new vehicles. With a longer term, the principal loan amount is paid off more slowly. This means that your payments are lower, but you pay more interest overall.
The Different Types of Auto Loans
As you search for an auto loan for your upcoming purchase, you’ll find several options. For a purchase or a refinance, you can apply through a bank or an online lender. If you choose to nurse your old vehicle for a few more years, auto repair loans are also available.
Bank Auto Loans
You can apply for a bank loan either by walking into your local branch, by phone, or through the bank’s website.These are available with credit unions as well as local, regional and national banks. These banks typically have more overhead, so their rates and fees are often slightly higher than alternatives.
Online Auto Loans
Online auto loans are offered by online lenders. There is not a local branch that you can walk into. The application, payments and all correspondence are typically completed online. Because these lenders don’t have branches to maintain, they often have better rates and lower fees.
Auto Repair Loans
Several options are available for auto repair loans. You can apply for an unsecured personal loan through a bank or online lender. Unlike a car loan, an unsecured personal loan has no collateral. As a result, the rates are typically higher. You could also refinance your car loan to cover the necessary repairs.
What Are Auto Refinance Loans?
Drivers typically choose to refinance their car loans for three reasons. First, if you have equity in your vehicle, refinancing allows you to tap into that equity. Second, refinancing could result in a lower interest rate. Finally, you may set up a lower auto loan payment by refinancing.
Auto Loans with Bad Credit: What Do I Do?
Auto loans for bad credit are available, but the interest rate is typically higher than the rate a good-credit borrower will receive. In some cases, you may need to make a larger down payment. If you have bad credit, consider using your auto loan to rebuild your credit. This is accomplished by making each of your monthly payments on time.
The best auto loans are those that are affordable for your budget and meet your needs. As you can see, there are numerous types of car loans, and there are notable differences between the options. Research your options carefully before applying.
If you’re looking to take the first step towards financial freedom and get support with your debt, contact PDS today.
