A car investment is one of the most expensive investments you can make in your life. That is why it can be a bit overwhelming. Choosing the right car model and getting the best deal from a trusted auto lender present a great challenge. However, proper prior research can make the whole process a little bit easier. Different auto lenders present different options to choose from. Therefore, it is important to understand the impact that a particular auto loan deal has on your finances. In this regard, know how to ask the right questions. Below are the questions to ask when seeking an auto loan.
1. What Interest Rate is Charged on the Loan?
Interest rates are of different types, including fixed and variable rates. In this regard, fixed rate interest rates maintain uniform monthly repayments over the period of loan or loan term, while variable interest rates tend to fluctuate over the loan term, causing a change in in the amount of monthly repayments. Fixed rate loans make it easier to plan because the exact amount of monthly repayments is known. Consider an auto lender offering a fixed monthly repayment loan program.
2. What is the Duration of the Auto Loan?
Take your time to find out from the lender how long the repayment period is going to last. Some auto lenders offer a 2-year-loan plan with low interest rates. However, you may have to part with large sums of money in monthly repayments. In contrast, others offer hiked up interest rates and monthly repayments over a longer period of time such as 6 years. Take your time to evaluate the options available to you before making the right decision.
3. Will It Require a Down Payment or Will I Be Required to Make a Balloon Payment?
Some loans require an initial lump sum amount (down payment) to be advanced to the dealer while others require that the lump sum be paid at the end of loan term (balloon payment). Either of the two reduces the aggregate loan amount, thereby resulting in reduced monthly repayments. You can greatly reduce your monthly repayments by opting for the down payment option.
4. Does the Loan Attract Any Penalties?
Review your financial contract to make sure you thoroughly understand what you are getting yourself into before signing. Some loans bear a prepayment penalty for loans repaid early. Therefore, do not be too excited about getting your first car and making early repayments not knowing that it could ruin your finances. Others have several other penalties. Find out if it attracts any extra charges.
5. Is Payment Protection a Part of the Loan?
Payment protection clauses in auto loan deals often safeguard the borrower when unforeseen events occur. They can also extend the loan’s credit insurance. Evaluate all the terms and conditions before you select the auto lender that offers the best deal.
Take your time and evaluate different auto loan options by asking the above-mentioned questions to ensure you fully understand what you are getting yourself into before signing the contract.