What To Look For in A Car Loan

Almost everybody that purchases a car will need some sort of car loan. If they shop around and get multiple auto loan quotes, they might find that the terms of each loan are different. They might decide to pick the loan with the lowest payment, so they have more money to spend each month. That is not always the best choice. If you compare different automobile loans, you might find that an automobile loan with a larger monthly payment is the better one, if you can afford the monthly payments.

Two Different Car Loans

Let's say that you are going to buy a car that will cost $22,000. You have $2,000 that you can put down as a down payment, so you need to take out a total loan of $20,000. You can take out a 48 month loan with an interest rate of 7.48%, or a 36 month loan with an interest rate of 7.38%. Your monthly payment with the 36 month loan would be $621 per month, and your monthly payment for the 48 month loan would be $483. You may think that the 48 month loan is a better deal, even if you could afford the larger payment. Is it really?

If you take out the 36 month loan, you will end up paying a total of $22,357 over a period of 3 years. The 48 month loan has a smaller payment, but you will end up paying $23,203 over the life of the loan. The extra year that you have to make payments will end up costing you an extra $846. You might also have the choice of a 60 month loan at 7.57% interest. The monthly payment would be $401 a month, but you'd end up paying $24,085 over the life of your loan, or $1728 more than you would pay for the 36 month loan.

Down Payment Options

Your lender might be able to get you a better deal if you can put down a larger down payment. A larger down payment helps you in two ways. The more you put down, the less of a loan you will have to take out. Additionally, the lower interest rate that your lender will offer you means that you pay less in interest. This equals a lower monthly payment for you, no matter how long you decide to take to pay off your loan.

Multiple Quotes

When you go shopping for your auto loan, make sure that you get multiple auto loan quotes. Not only will you be able to compare the monthly payment with different payment terms and down payments, different lenders will also vary in the interest rate that they will give you. Compare all the different factors, and you will be able to find the right auto loan for you.