Car loans are loans you take out to finance the purchase of a vehicle, typically lasting 36 or 72 months with monthly repayments made to cover both principal and interest.
Car loans are usually secured loans, meaning your lender will place a lien against your vehicle title to protect themselves in case you sell it without first repaying off their loan.
Dealer financing
Dealership financing can be an attractive alternative for car buyers who don’t wish to apply for loans individually, or don’t meet bank lending eligibility. However, this arrangement acts as an intermediary between you and a lender and may mark up your interest rate accordingly – it is therefore wise to conduct extensive research prior to shopping for a car at dealership financing facilities.
Some dealers provide manufacturer-sponsored low-rate or incentive programs on specific models. This can be beneficial to consumers with excellent credit who can qualify.
Negotiate terms of payment beyond just APR, such as length of loan term and total financing amount. Also compare offers from both a bank and dealership before making your decision. Getting pre-approved can help avoid pushy salespeople; having this number on paper allows you to reject unnecessary add-ons more easily.
In-house financing
In-house financing occurs when car dealerships provide their own auto loans to customers, often at higher interest rates than traditional lenders and possibly charging additional fees to cover risk. Some dealerships even report borrower information to national credit bureaus – though this isn’t the case with all.
“Buy Here, Pay Here” loans offered through dealerships are known as “buy here, pay here”. While not as closely regulated as loans offered at banks and credit unions, such loans often carry greater risk for lenders due to pre-calculated interest rates which make lowering monthly payments difficult for the borrower.
If you’re trying to build up your credit, it is advisable that you avoid taking out in-house loans as much as possible and either secure a co-signer or wait until your score improves before purchasing a vehicle.
Direct lenders
Car loans are an attractive financial product available from many lenders, typically offering competitive interest rates and being available to those with good credit scores. They may be obtained in-person at banks or online lenders – it’s wise to compare different offers before making your choice and check your credit report to ensure no delinquency or high utilization is present.
Direct lending is a relatively new part of the private debt market that emerged following the 2008 financial crisis. As traditional commercial banks pulled away from middle market lending, alternative lenders flourished – these offering diverse portfolios of assets with greater yield potential than banks could achieve.
Direct lending may be an ideal profession for someone who enjoys analyzing multiple deals in detail without being overly detailed about any one transaction. However, this role might not suit someone interested in working on equity side deals or managing portfolio companies’ operations directly.
Longer-term loans
An increasing number of car shoppers are opting to finance their vehicle over six, seven or even ten years – but is this really wise?
Longer loan terms may result in lower monthly payments; however, their overall loan costs often outstrip shorter-term loans because lenders try to mitigate risk by charging higher interest rates on longer loans.
One way to cut car payments is to consider purchasing a used vehicle. Doing so allows you to avoid the massive depreciation associated with new vehicles in their first year of ownership and may save money by opting for one with longer warranties; such as five or ten-year bumper-to-bumper warranties covering both bumpers, as well as powertrain components like engine, transmission and other mechanics of your vehicle – something to keep in mind when shopping for your next ride!