Car loans make it easy for anyone with a source of income to purchase an automobile. With "easy financing" and little or no down payment, it's easy to get carried away and purchase a car with a sticker price beyond what you can easily afford. However, as you may later realize, paying the repayment installments can strain your budget. The amount you pay every month depends on the interest rate on your car loan that you have agreed to pay.
The Internet has become a great resource to car shoppers, making it easy for them to gather all the information required to help find the right vehicle at a fair price. There are several auto-loan sites that make it easy to apply for an auto loan. However, it's likely that you will get a lower car loan interest rate than the car maker's captive finance company, credit unions and banks.
Depending on the model of the car, your credit history and the down payment you are willing to make, you can get a car loan with interest rates ranging from 0 per cent to 12 per cent. Car maker's captive finance companies often offer interest free loans or low interest loans to clear inventory or push the sales of slow moving vehicles. However, low interest loans are not available on all models.
If you approach a bank for a car loan, you can expect to be charged an interest rate between 5 to 12 percent. At present, the average rate for a loan for the purchase of a new car with a term of 48 months is 6.5 percent and the average rate for used car loans is 7.25 percent. Auto loan interest rates are generally higher compared to mortgages because automobiles depreciate rapidly in value and the delinquency rate of such loans is higher.
To make the most of a car loan, you should make a large down payment, if possible, and keep the term of the loan short. Cars depreciate quickly in value and you are not likely to get a good price if you decide to exit the auto loan earlier than your term. If your loan term is long, you might find that you owe the company more than the present market value of your car in the resale market.
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