In the wake of the recent economic turmoil which has shaken
international and local markets alike, comparison shopping
when making a major purchase has never been more important.
Aside from one’s home, a car is usually the largest purchase
that one is likely to make in a given year, and thus, making
a conscientious and informed comparison of car loans is
an important step that should not be overlooked. The effects
of this decision can have a significant impact on one’s
finances and can alter the true purchase price of a car
dramatically.
The three factors that have the greatest impact on a car
loan are the term, the interest rate, and the lender. The
lender has an impact in the sense that different lenders
have different requirements and different motivations. For
example, the finance division of an auto manufacture is
essentially in business simply to help the company move
cars off the balance sheet and into your possession. As
such, these lenders tend to offer greater incentives and
have more creative solutions. These lenders, however, have
a minimum credit quality with which they can work; below
that and you must find a small local lender. These smaller
institutions can be more flexible, and while it may be more
costly, some can provide car
loans regardless of credit.
As far as the term and the interest rate go, there are
some basic which are important to keep in mind. The more
that you pay in interest, the more the total cost of the
car becomes. Furthermore, the longer the term of the loan,
the more that will be paid in interest. For many borrowers,
the only focus is on the monthly payment that will be due
and can that number be afforded. A better practice is to
determine the overall cost of the purchase and to then decide
which loan is the most appealing and if the available choices
make the purchase reasonable. If the total purchase price
is well beyond what you think the care is worth, the monthly
payment should not be a factor. Overall, the best and most
reasonable way to make a comparison between car loans is
to look at the total cost.
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