Things to Consider When Looking for Auto Financing
When looking to buy a new car, one of the most important things you need to consider is how you will pay for it. For most car buyers, the immediate answer is getting auto financing. Although purchasing a used car can save you thousands of dollars as compared to buying a used car, you will still need a large amount of money for your newly-acquired vehicle.
If that’s the case, PA Auto Sales can finance the deal for you.
Why Do Used Car Dealers Finance Deals?
Both new and used car dealerships make money from financing vehicles. Although they do not have any capital themselves, they mark up the financing packages they get from other money lenders, like banks. When you start making payments, they pay back the owed money to their lenders and take the difference as their own profit.
The Importance of Down Payment
If you want to buy a used car through auto-financing, bear in mind that you can get a better deal on your loan if you make a good amount of down payment. Making a large down payment reduces the amount you need to finance, which means you can get lower monthly payments and a shorter loan term. It also reduces your loan-to-value ratio, which shows the ratio of the loan to the value of the used car. The lower your loan-to-value ratio, the more chances you have for a better financing deal.
Making a down payment also reduces negative equity or what is known as underwater loan in the car industry. If you are underwater on a loan, it means you owe more on your car than its worth. That means if the car gets stolen or damaged beyond repair, you will still owe the lender the difference between the value of your car and the insurance claim.
The Risks of a Long Loan Term
You could be tempted to extend your car loan term over several years to reduce the monthly payment. However, this is one of the riskiest financial decisions when it comes to buying a used car.
Long-term car loans often come with a higher-than-usual interest rate and so are significantly more expensive than shorter run loans. Even if you are eligible for car financing, you run the risk of having your car depreciated at a faster rate than you can make the payments. This means you will have a vehicle on your hand that is worth less than what you owe.
Additionally, during long-term car loans, you have the added risk of your car needing expensive repairs. That means your budget will have to bear the burden of not just paying the monthly payments, but also costly maintenance. Even if you don’t put your car through the wringer, its warranty will expire while you are still making payments.
Don’t Add in Extra Fees
You may think it’s convenient to roll in your extra fees and add-ons into your auto financing, but it is not a good idea. Firstly, it makes your loan exceed the value of your car, which means that you will have an underwater vehicle. As such, if the car is damaged or stolen, you will be left in debt. Secondly, it also hides the true value of your add-ons. For example, if you get a paint protection deal that costs you just $17 a month, you will probably not calculate it to see that it will cost you $1224 plus interest over a 6-year loan period.
Finishing the Paperwork
Buying a used car means a lot of paperwork. As your auto financing process comes to a close, you will probably just want to get rid of the paperwork and go home. However, that is not a wise decision. Buying a car is a huge investment and it deserves careful pouring over the loan and purchase documents.
Make sure the paperwork shows the exact terms you discussed and doesn’t have any omissions or errors. Also, note the loan amount and interest rate, and if they contain any discrepancies, ask the car dealership to redo the papers before you sign them. It is so much easier to fix a mistake before you sign a paper.
Make sure you make your payments when they are due. Doing so can help you attain a good credit score and build your car’s equity. If you are late in your payments, it can worsen your credit history and make you susceptible to loan default and car repossession.
A great way to ensure you don’t forget to pay your loan is to set up an autopay option from your bank account. This will ensure automatic payments on a specific time each month.
In case you cannot make your monthly payment, it is best to go to your car dealer and inform them about the issue. They may allow you to defer a few payments or help you refinance your loan to a more affordable one.
If you are looking to get pre-approved auto financing, there is no place better than PA Auto Sales. We have a huge used vehicle inventory in which you can look for the car of your dreams. What’s more is that we can help you finance it too!