| Thousands of first-time car buyers enter the market | | | | balance exceeds the current market value of the |
| every day. Unfortunately, many such buyers are not | | | | vehicle. This can become a problem if the owner |
| familiar with the basics of auto loan financing and often | | | | wants to sell or trade for another vehicle in the middle |
| make costly mistakes. | | | | of the loan. Furthermore, if the vehicle is stolen or |
| New car buyers should educate themselves about | | | | totaled in an accident in mid-loan, insurance only pays |
| auto financing long before they step into a dealer | | | | current market value, not outstanding loan balance. |
| showroom. Learning about financing from a dealer | | | | Interest rate determines what you'll pay in finance |
| salesperson on the day you intend to buy a car is not | | | | charges for your loan. At the time of this writing, the |
| the best way. | | | | national average interest rate for a 36-month new-car |
| The factors that determine how much you'll pay for an | | | | loan is 6.28% (from BankRate.com). Used car rates |
| auto loan are 1)amount to be financed, 2)loan term | | | | are higher. Rates can vary from lender to lender, and |
| (months), and 3) interest rate (finance charges). | | | | dealer to dealer. Dealers often mark up a lenders rate, |
| The amount to be financed will include the vehicle price | | | | so it pays to shop around for your own financing rate |
| that you and the dealer agree upon, plus any additional | | | | from banks and credit unions. Your interest rate is also |
| costs such as credit insurance, extended warranty, | | | | dependent on your credit score. A poor score can |
| and dealer-installed optional equipment. This amount | | | | result in a high rate. |
| may also include fees and taxes involved in the | | | | Car manufacturers frequently offer low promotional |
| purchase. This amount can be reduced by any down | | | | interest rates, even as low as 0%, which are usally |
| payment, rebates, or trade-in allowance. | | | | very good deals. However, make sure you understand |
| Loan term is the number of payment months, and can | | | | all the details and conditions that go along with the deal |
| range from 24 months to 72 months or more. | | | | before you accept. |
| Generally, the longer the loan, the lower the payments. | | | | One of the best ways to explore how the above |
| However, there are disadvantages to long-term loans. | | | | factors affect the payment amount of an auto loan is |
| Long loans with lower payments do not pay down the | | | | by using a full-function online calculator such as the |
| loan principal as quickly as a shorter loan. This often | | | | Auto Loan Calculator. |
| creates a "negative equity" situation in which the loan | | | | |