What Should You Know About Your Car Loan?

Posted on September 06, 2015 by

Thursday August 06 , 2015 Finding the right car loan with bad credit can be tricky business. There are many factors to consider and the honest truth is when you have anything but good credit there is no such thing as perfect car financing terms. The good news is you can still negotiate and the first step is getting informed as to what all the terms mean, and how this will affect your repayment agreement. With so many fees and charges, it is important to understand what your car loan will really mean to your bank account. Don’t sign anything until you fully understand what exactly you are signing up for. We’ve compiled a list of questions you should ask once you’ve been approved for a bad credit car loan. Is the interest rate fixed or variable? One of the biggest factors when applying for a vehicle loan regardless of credit it the interest rate. By now you may know that the better your credit score and rating, the lower your interest rate. The reason for this is that lenders determine interest rates based upon risk. If your credit report shows that you have effectively managed a loan before it’s likely they can anticipate the same behaviors and vice versa. Variable interest rates are a lot like gambling. The outcome is unpredictable; sometimes the odds fall in your favor and sometimes they don’t. Variable interest rates fluctuate thought your term, as a result your payments do as well. When rebuilding your bad credit it is advisable that you err on the side of caution. Lenders are looking for consistency and the best way you can ensure this as a borrower, is to eliminate as many variables as possible. Knowing what and when you are expected to make repayments is key in maintaining consistency and rebuilding your credit. For this reason a fixed rate is ideal as your payments will not vary from start to finish of your car loan repayment term. What is the term of the loan? The term of your loan determines the size of your car financing repayments. A short term loan such as 2 years means overall you pay less interest but your payments are quite high. A longer term means you pay more interest in the long run but your payments are much smaller. While we all want to save money be sure to chose a term that you can reasonably afford for the long term. Again, consistency is key in rebuilding credit and establishing low risk behaviors. What is the interest rate of the loan? Always ask the interest rate of your car loan. Most people focus on the affordability of the monthly payments and fail to realize the amount that is repaid in the long term vs. the purchase price of the vehicle. While it is important to have a loan that you can afford, it isn’t ideal to have the terms structured around what you can afford monthly. Is there a balloon payment required at the end of my car loan? Loans with a balloon structure mean that your monthly repayment is smaller, however at the end of the term you will owe a lump sum payment that could even require refinancing. This type of loan may be suitable for some, but if you’re not expecting it, it can be a costly surprise. How much is the financing establishment fee? The establishment fee is the fee associated with setting up the loan. The fee depends on the lender and term but a fee of $10 a month over 5 years can really add up. Can I make extra payments without penalty? You should always ask if there is a fee associated with additional payments. What are the ongoing fees associated with the term of my car loan? Ongoing charges are a reality of a car loan, but knowing how much these fees are essential in understanding what you are paying for. Small fees may seem relatively minor but multiple fees over several years can equal to a lot of money. Knowing what you are paying for not only allows for you to make a well-informed decision, but it also allows for you to negotiate. What is the exact amount of each payment? This is critical in determining affordability of your loan What is the total number of payment? Knowing how many payments you will be making will help you determine exactly how much you are repaying vs. the purchase price of your new car. Will I need to pay an early termination fee if I pay out the balance of the loan before the end of my term? The excitement of buying a new car can cause you to overlook some details before signing. Be sure to read the terms and conditions as you may end up having another costly fee if you wish to pay out the balance of your car loan.

Finding the right car loan with bad credit can be tricky business. There are many factors to consider and the honest truth is when you have anything but good credit there is no such thing as perfect car financing terms. The good news is you can still negotiate and the first step is getting informed as to what all the terms mean, and how this will affect your repayment agreement. With so many fees and charges, it is important to understand what your car loan will really mean to your bank account. Don’t sign anything until you fully understand what exactly you are signing up for. We’ve compiled a list of questions you should ask once you’ve been approved for a bad credit car loan. Is the interest rate fixed or variable? One of the biggest factors when applying for a vehicle loan regardless of credit it the interest rate. By now you may know that the better your credit score and rating, the lower your interest rate. The reason for this is that lenders determine interest rates based upon risk. If your credit report shows that you have effectively managed a loan before it’s likely they can anticipate the same behaviours and vice versa. Variable interest rates are a lot like gambling. The outcome is unpredictable; sometimes the odds fall in your favor and sometimes they don’t. Variable interest rates fluctuate thought your term, as a result your payments do as well. When rebuilding your bad credit it is advisable that you err on the side of caution. Lenders are looking for consistency and the best way you can ensure this as a borrower, is to eliminate as many variables as possible. Knowing what and when you are expected to make repayments is key in maintaining consistency and rebuilding your credit. For this reason a fixed rate is ideal as your payments will not vary from start to finish of your car loan repayment term. What is the term of the loan? The term of your loan determines the size of your car financing repayments. A short term loan such as 2 years means overall you pay less interest but your payments are quite high. A longer term means you pay more interest in the long run but your payments are much smaller. While we all want to save money be sure to chose a term that you can reasonably afford for the long term. Again, consistency is key in rebuilding credit and establishing low risk behaviours. What is the interest rate of the loan? Always ask the interest rate of your car loan. Most people focus on the affordability of the monthly payments and fail to realize the amount that is repaid in the long term vs. the purchase price of the vehicle. While it is important to have a loan that you can afford, it isn’t ideal to have the terms structured around what you can afford monthly. Is there a balloon payment required at the end of my car loan? Loans with a balloon structure mean that your monthly repayment is smaller, however at the end of the term you will owe a lump sum payment that could even require refinancing. This type of loan may be suitable for some, but if you’re not expecting it, it can be a costly surprise. How much is the financing establishment fee? The establishment fee is the fee associated with setting up the loan. The fee depends on the lender and term but a fee of $10 a month over 5 years can really add up. Can I make extra payments without penalty? You should always ask if there is a fee associated with additional payments. What are the ongoing fees associated with the term of my car loan? Ongoing charges are a reality of a car loan, but knowing how much these fees are essential in understanding what you are paying for. Small fees may seem relatively minor but multiple fees over several years can equal to a lot of money. Knowing what you are paying for not only allows for you to make a well-informed decision, but it also allows for you to negotiate. What is the exact amount of each payment? This is critical in determining affordability of your loan What is the total number of payment? Knowing how many payments you will be making will help you determine exactly how much you are repaying vs. the purchase price of your new car. Will I need to pay an early termination fee if I pay out the balance of the loan before the end of my term? The excitement of buying a new car can cause you to overlook some details before signing. Be sure to read the terms and conditions as you may end up having another costly fee if you wish to pay out the balance of your car loan.