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buying 7 Costly Misconceptions About Car Loans

23:50  26 february  2018
23:50  26 february  2018 Source:   consumerreports.org

How to Finance a Car and Get a Car Loan

  How to Finance a Car and Get a Car Loan Learning the basics of car financing can help ensure you get the most affordable financing offer available. The two most important things to do when you are buying a new car are: (1) finding a vehicle that meets your needs and (2) deciding how to pay for it. Our new car rankings and reviews can help you with the first part, and you can read on to learn about the second.

Here are seven misconceptions about car loans that you should know about. It's the monthly payment that matters. More People Taking Out Long-Term Car Loans . A Lower Car Payment Can Be a Costly Mistake.

If you're buying a new or used car , there's a good chance you're taking out a loan to pay for it. About 56 percent of new cars and about half of used cars purchased in the third quarter of 2017

  7 Costly Misconceptions About Car Loans © Provided by Consumer ReportsConsumer Reports has no financial relationship with advertisers on this site.

If you're buying a new or used car, there's a good chance you're taking out a loan to pay for it. About 56 percent of new cars and about half of used cars purchased in the third quarter of 2017 were financed with loans, according to the credit-reporting agency Experian.

Research

Research

Those loans averaged more than $30,000 for new cars and almost $20,000 for used cars.

But research by Instamotor, a car buying and selling website, as well as by Credit Karma and the Consumer Financial Protection Bureau, concludes that people taking out car loans don't always understand the fundamentals of auto financing, which means they could be paying too much for their loan.

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Paying too much for car loans means loss of money in the pockets of consumers. Consumer Reports’ 7 Costly Misconceptions about Car Loans presents an excellent summary on how to keep more money in your pocket when buying a car .

7 Costly Misconceptions About Car Loans . For more information, read " How Much Can You Afford to Spend on a Car ? " and " Where to Shop for a Car Loan ." Below are CR's tips on what to look out for when getting a car loan .

Here are seven misconceptions about car loans that you should know about.

It's the monthly payment that matters. While the payment must fit into your budget, if you focus only on that you could end up paying too much, says Bruce McClary, vice president of public relations and communications for the National Foundation for Credit Counseling, a Washington, D.C.-based nonprofit organization.

That's because you could be distracted from focusing on the total cost of the car, including the price and the interest charged on the loan.

Jack Gillis, director of public affairs for the Consumer Federation of America and the author of "The Car Book," advises car buyers to compare the amount the dealer is asking for the car, plus the loan interest rate, to what others are offering. You can get that information on such sites as TrueCar and Kelley Blue Book. You can also compare car-loan rates by checking with banks, credit unions, and online lenders such as Clearlane and E-Loan.

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Being short to the medium term loan and there is prevention against putting a major dent in the savings, most of the car customers go for a car loan . So, let us discuss five common misconceptions you might be having about the car loans –.

7 Costly Misconceptions About Car Loans . Understanding how car loans work can save you money. Here are seven misconceptions about financing a car and what to do about them.

If the lender approved me for a loan, I can afford the car. It’s tempting to purchase the most expensive vehicle the bank will finance, but that’s risky. McClary says that you need to take a realistic look at your income and expenses to see whether you can afford the payments while having enough left over for savings and emergencies.

Think ahead, too. Do you want to buy a home, make college payments for your child, or save more money for retirement? As a general rule, your monthly car expenses, including your loan payment, shouldn't exceed 10 percent of your gross monthly income, McClary says.

The rate on the loan from the dealer seems high, but it's non-negotiable. Unlike loans from your bank or an automaker, third-party loans arranged by car dealers often have rates that have been marked up to boost profits, Gillis says. Those rates, typically, are negotiable, he says.

Before talking to a dealer about the rate, check with several local banks, credit unions, and online lenders to find the best rates you would qualify for, and then ask the dealer to beat them, says James Bragg, founder of the car-buying information website Fighting Chance. “Make the loan a competitive thing,” he says.

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7 Costly Misconceptions About Car Loans . Understanding how car loans work can save you money. Here are seven misconceptions about financing a car and what to do about them.

7 Costly Misconceptions About Car Loans . There are many advantages to shopping around for auto loans and lining up financing before striking a deal on a car . Loan shopping gives buyers the chance to compare interest rates.

Put down as little as possible, so there will be more money available for other expenses. Not a good idea. The less you put down in the form of cash, a trade-in, or both, the more you'll add to the loan, leaving you paying higher finance charges, says Gillis.

Besides that, a low down payment also could mean that you'll end up owing more on your loan than the car is worth (because new cars depreciate quickly after being purchased). This situation, known as being "upside down,” can be a big problem if you need to dispose of the car, perhaps because you can no longer afford the payments. It’s also an issue if the vehicle is stolen or totaled, because your car-insurance company will probably pay you only what the vehicle is worth, not the additional amount you still owe on the loan. McClary recommends putting down at least 20 percent of the cost.

Refinancing my car loan isn't worthwhile. Sometimes refinancing can save you hundreds or even thousands of dollars. Even with interest rates being low in recent years, you still may be paying a relatively high rate if, say, your credit score was low when you took out the loan. Refinancing an auto loan is also much easier than refinancing a mortgage, and you won't incur fees.

Five Steps to Landing a Good Car Loan

  Five Steps to Landing a Good Car Loan Five Steps to Landing a Good Car Loan Financing a new car is not as simple as getting electricity turned on in a new home or apartment. Buying a big-ticket item with a loan for $20,000 and up should prompt some research, yet many consumers who invest immense effort in negotiating the purchase price let their guard down when it comes to the cost of financing. Securing a low-cost car loan doesn’t require an advanced economics degree, but it takes a little more effort than simply accepting whatever the dealer tells you will be your new monthly payment.

7 Costly Misconceptions About Car Loans . Understanding how car loans work can save you money. Here are seven misconceptions about financing a car and what to do about them.

7 Costly Misconceptions About Car Loans . Understanding how car loans work can save you money. Here are seven misconceptions about financing a car and what to do about them.

One important piece of advice: Avoid the temptation to extend the loan term beyond that of your original loan, advises Greg McBride, chief financial analyst for Bankrate.com. While a longer loan can further cut your monthly payment, the additional interest can offset some or all of the savings.

The dealer says that if I trade in my car for a new one, he’ll pay off my existing loan. That might sound like a great idea, but unless your trade-in is worth more than the amount you owe on your existing loan, the dealer will simply add the outstanding balance to the loan for the new vehicle, essentially leaving you paying off two loans, says McClary.

When my loan is paid off, it will be the perfect time to buy a new car. It’s just the opposite, says Gillis. “Now it’s time to enjoy your vehicle without payments,” he says. You'll no longer have the hassle of paying a monthly loan payment, and you'll save money by holding onto a car that's not losing its value as quickly as if it were new.

Consumer Reports is an independent, nonprofit organization that works side by side with consumers to create a fairer, safer, and healthier world. CR does not endorse products or services, and does not accept advertising. Copyright © 2018, Consumer Reports, Inc.

Where to Shop for a Car Loan .
The auto-finance business is enormous, with hundreds of institutions making hundreds of billions of dollars’ worth of car loans every year. For many consumers, though, it can be hard to know whic h type of lender is right for their financial situation.The largest lenders are big national banks, such as Bank of America, Capital One, Chase, and Wells Fargo, but there are other choices out there. The “captive” finance companies that belong to the automakers, such as Ford Motor Credit and Toyota Financial Services, are big players.

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