Borrowing for Your Budget
When you take out a car loan, you’re relying on money from a lender to help you make the purchase. You shouldn’t base your car purchase on how much money a lender offers. Instead, you need to make sure the loan amount and monthly payments fit your budget. You want to make sure you can afford to pay back the loan on time and that you don’t accrue too much interest on the borrowed money over the life of the loan. Remember—the purchase price of a vehicle is only one factor when you take out a loan. Many other loan components affect how much you can afford.
You shouldn’t base your car purchase on how much money a lender offers.
Now that you’ve found your vehicle, it’s time to start the loan process. Here are the steps you can expect to take once you’ve negotiated the purchase price of a vehicle:
- When you apply for a loan, the lender will pull your credit to determine your creditworthiness and use this information to decide how much money to loan you and at what interest rate.
- Decide how quickly you want to repay the loan. Do you want a 36-month loan term (length of loan)? 72-month? Somewhere in between? Ask if there is a penalty fee for paying off the loan sooner.
- Review the loan document carefully. Make sure the information on the purchase price, down payment or trade-in, and interest rate is correct.
- Remove any dealership extras that bump up the cost of your loan and that you didn’t ask for or don’t want, such as extended warranties, undercoating or roadside service.
- Ask for an explanation about any extra fees or charges you don’t understand.
- Once you’re confident that everything in the loan document is fair and accurate, it’s time to sign.
- Your first loan payment is typically due 30 to 45 days after you close the deal.
Until you pay off your auto loan, the lender holds the title to the car, which makes them the lien holder. As the lien holder, your lender has the right to reclaim your vehicle if you fail to make your loan payments. Once you pay off your loan, the title (or ownership) is transferred or released to you.
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