Auto finance or an auto loan will help you to buy the car of your choice. You can get financing on new cars as well as sued cars although it is a little difficult to find finance for used cars. This is more so because most lenders are no aware of the past of a used car and hence they are a little hesitant to take risks. It is always advised to first go shopping for an auto loan and then shop for your car. If you first try to shop for an auto loan then you will know exactly how much down payment is required and how much you will financed. This will help you to determine a budget and maybe the type of car also.
The interest rate in auto finance is dependent on various factors like:
- The Lender: The interest rate varies from lender to lender depending on whether it is a bank, a financial institution, credit unions, car makers or a private lender.
- Type of Car: The interest rate changes with the type of car. It has been seen that the interest rate can be higher for used cars than for new cars.
- Loan term: The longer the term of the loan, the higher the interest. After September 11, many lenders offered 0% finance to prospective customers but the 0% was valid only on short term loans with tenure of maximum 2-3 years.
- Credit rating: This is an extremely important part of the entire process. If you have taken previous loans and your credit rating has been damaged due to non payment of monthly installment, then the interest rate charged will be higher. There are lenders who don't provide auto finance to people with bad credit rating.
According to Credit Union National Association, the year end interest rates offered by Credit unions have come down from 2000 to 2004. In the year 2000, the interest rate on new cars was 8.2% and on used cars it was 8.8%. In 2004, for new cars it was 5.2% and was used cars, it was 5.7%.
The bottom line is that if you are planning to go for an auto insurance loan, then you need to get some quotes from credit unions and banks and then compare it with what dealers offer. Based on all the above choices, you can make an informed decision and always try to sign up for the shortest possible term if you can afford. Short term equates to 0% finance or lower interest rates.