The current average price of a new car in 2023 is nearly $58,000. Even if you’re in the market for a preowned car, a reliable choice is between $20,000-$40,000.
However, keep in mind that interest rates on used cars tend to be much lower than those on new cars. They’re less risky investments for lenders since use vehicles don’t depreciate as quickly or lose value as fast (if at all).
If you’re dreading spending all that money on a car, you’re not alone.
Understanding Car Financing Options
With car financing, you have two options. The first is to get a bank loan and the second is to get one directly from the car dealership. Which one you end up going with will probably depend on the terms of the loan and your credit score and financial stability.
Getting a Bank Loan
If you’ve previously been approved for a loan, you might already be familiar with the process. Typically, you’ll start by exploring the options offered by your own bank and then compare them with other lenders to ensure you’re getting the best possible terms and conditions.
Choosing to obtain a loan from your bank can offer several benefits. A pre-existing relationship with your bank can result in more flexibility with the loan terms, such as the ability to adjust payments or extend the loan duration, in case you face difficulty meeting your obligations.
However, it’s important to keep in mind that banks usually have stringent lending policies. They may require a good credit score, and the approval process could take several days before you can finally purchase your car.
Getting a Dealership Loan
One of the advantages of financing through a dealership is that it can streamline the process, allowing you to complete everything in one place and making it faster overall. Another benefit is that the dealership might be willing to negotiate on interest rates since they are also trying to sell you a car.
Even if your credit score is less than ideal, dealerships may still be willing to provide financing options. They will run their own credit check to determine your eligibility for the loan.
However, there are potential risks involved with this type of financing. If you obtain a bad credit loan from a dealership and default on payments, you could end up losing your car as collateral.
Additionally, while dealerships may be more lenient with credit requirements, the interest rates are often higher compared to those offered by banks. This could result in you paying significantly more for the car than its actual resale value when the loan term ends.
Decide on a Term Length
While there are no set rules on how long any given car loan will be, the average loan is 72 months (6 years). It really depends on what you and your lender agree is the best timeline given your financial state.
The longer you stretch your loan out, the lower your monthly payments will be, but the more you’ll pay in interest. On the other hand, new vehicles lose value extremely quickly, so paying more interest might not be what you have in mind.
Get Good Interest Rates
When comparing loan costs, the biggest factor is the interest rate. It’s important to know whether you’re getting a fixed or variable interest rate, as this plays a huge role in how you budget.
Fixed interest rates don’t change, so you’ll get the same car payments each month. Variable rates fluctuate with the market, so your car payments could go up or down from month to month.
The interest rate you’re offered by the lender is directly tied to a few important things: credit score, current finances, and economic conditions. Assuming you have stable employment, the only thing you can control is your credit score.
Build Your Credit
Building your credit score is essential to obtaining loans, but it takes a lot of financial discipline. If you have a history of delinquent credit card or loan payments, a car loan will be a difficult mountain to climb.
However, you do have options. MyMarble for example can help give you the resources to build credit and relieve debt. With our tools, you’ll better understand your financial data so that you can work to achieve financial freedom.
If you’ve been denied a car loan, we can help you increase your credit score to the point that you’re in a lendable position. From there, you’ll be able to get the car you want under loan terms that allow you to support your financial stability.
With your credit in better standing, you can confidently apply for a car loan of your choosing. Whether it’s from your bank, a different bank or the car dealership will depend on your comparison of loan terms and conditions for each lender.
Because you’re in a positive financial position, you hold the keys to your car loan. You’ll have more options and more financial freedom to get the car you want.
Get a Car Loan Pre-Approval Estimate
If you’ve been spurned by lenders in the past because of bad credit, it’s time to give you more financial stability once and for all. With our help, we can take your credit score from an unlendable level to a lendable one in a matter of months and you can finally get your car loan.
It can seem overwhelming at first glance, but not to worry! Drive Away acts as your personal helper to get you into the car you want. Learn more or get started today!
