Car Loans: FAQs
Shopping for a car can be a stressful, but luckily, we have a few answers for many of the frequently asked questions that car shoppers have when it comes to financing. From basic questions to debunking myths, we can help you to better understand key components of auto loans.
Basic Aspects of an Auto Loan
An auto loan has an array of variables, but there are a few standard aspects. There’s the cost of the loan, interest rates, the length of the loan, your credit score, the down payment, and the condition of the car (whether it’s new or used). In most circumstances, your credit is the major factor. The less of a risk you are from the lender’s perspective, the more you can borrow and the lower rates you get.
Is APR the same as interest?
The APR is the Annual Percentage Rate, which includes the interest plus any other fees. In general, while the APR includes interest, it is not necessarily the same thing.
What are common financing mistakes?
Don’t lose sight of the overall total cost of the loan, and know what you want to pay in the long run. It’s easy to focus on monthly payments, but you should always calculate the total cost of interest before committing to anything. To go along with that, be sure to set a budget beforehand. Know what you want to spend when you start shopping and bring a companion to hold you accountable.
How much should I spend?
The general rule of thumb is that you shouldn’t spend more than 20% of your income on transportation. Naturally, that rule varies by shopper; however, you should never spend more than you know you can afford. Down payments are usually 10-20% of the cost of the car. That means, for a $15,000 car, you should try to spend at least $1,500 on the down payment if possible.
What does it mean to be “upside-down” on a loan?
The term “upside-down” refers to a car loan in which the vehicle owner owes more than a car is worth. This commonly occurs if a car is underinsured and/or an accident occurs that significantly affects the value of a vehicle.
We know auto loans can be confusing, but we at Don Wessel Honda are determined to help you find the perfect car and loan for you. Visit us to see our inventory and talk to our skilled staff about a finance plan that works for you.