Quick Points on How to Compare Auto Loans

When comparing auto loans, it is best to pick a few key features to compare.  By focusing on certain attributes of car loans, it becomes easier to find the loan with the best rates and features to meet your needs.  Without choosing these features, it’s easy to become lost in the maze of car loan features, terminology, and fee structures.  This is especially true as the auto finance market changes and car loans are offered by a number of different financial institutions.

When comparing car loans, take these factors into account:

Annual Percentage Rate (APR)- The Truth in Lending Act states that all lenders must calculate this rate in the same manner, and clearly sates it in bold print on the auto loan agreement.  The APR on a car loan includes the interest rate, all lender fees and charges, and shows how much the loan will cost annually.  It is expressed as a percentage of the principal.  The lower your APR, the better the loan when comparing car loans with the same term or length.

Fees and Charges – The fees you’ll have to pay up front to obtain the car loan can vary greatly.  These may be called origination fees or processing fees by various financial institutions that provide auto financing.  To determine the total cost, itemize and add up the fees, then compare from one car loan to another.

Total Cost – This is the sum of all your monthly payments, plus fees and charges.  Total cost is more revealing than the monthly car loan payment amounts, because it shows how much the loan will cost over time.  Whenever possible, avoid long-term auto loans.  A vehicle is a depreciable asset, and over time you will owe more for your car loan than your car will resale for.  The most common car loan terms are three year, four year, five year and six year car loans.  Evaluate the differences between the various terms as it impacts the monthly payment and try to select the shorter car loan terms that is affordable.

Prepayment Terms – Check to see if there ant restriction on prepaying the car loan early. Paying down your car loan faster allows you to save money in total interest charges– the more prepayments that can be made, the better.  Check to make sure there is no penalty for early prepayment or early payoff before the car loan was due to end.

Tags: auto finance, auto loan, auto loans, Car loan, car loans

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