Vehicle Loans are a type of loan intended to finance a new or used vehicle. Borrowers for Vehicle Loans make monthly payments of principal and interest, which usually reimburse the lender within five to six years.
There are two types of Vehicle Loans: Direct and Indirect. A direct vehicle loan is a type of loan where a bank gives the loan directly to a consumer. An indirect vehicle loan is where a car dealership acts as an intermediary between a bank or financial institution and the consumer.
In some instances, a loan taken out to purchase a new or used vehicle may be secured by the car in much the same way as a mortgage is secured by housing. The duration of the loan period is considerably shorter often corresponding to the useful life of the car.
What Auto Loans Are Not
Due to the sharp decline in a vehicle’s market value immediately following purchase, there is generally a period in which the amount owed on the car loan exceeds the value of the vehicle, called an upside-down or negative equity. If the vehicle is damaged beyond repair, the owner may potentially owe thousands of dollars on the loan.
Who Needs Auto Loan?
As with all lending, Auto loans can help a person afford the purchase of a new or used vehicle.
Things To Think About
Consumers should be advised that a few states, including New York, require lends of leased cars to include GAP insurance within the cost of the lease itself. This means that the monthly price quoted by the dealer must include GAP insurance. However, unscrupulous dealers sometimes prey on unsuspecting customers by offering them GAP insurance at an additional price, on top of the monthly payment, without mentioning a State’s requirements.
What to look for in auto loans
Low interest rates
Naturally, the first thing you look for is a low interest rate. A variance of just a few percentage points could add up to thousands in savings.
However, just because a vendor offers a low interest rate doesn’t mean it’s always the best fit. Look at term limits, minimum credit thresholds, membership requirements, and other fine print that could affect your qualification for a loan.
Next, look at convenience. Your time is valuable, so we place weight on which lenders have smooth and streamlined processes, with fewer hoops to jump through for a quote.
Last but certainly not least, consider which lenders make hard versus soft pulls on your credit. Because hard pulls impact your credit score, consider soliciting quotes from hard pull vendors all at once so they collectively count as a single pull, minimizing impact.