If you are in the market for a new vehicle or are looking to get a better interest rate or lower monthly payment on your current vehicle through refinancing, you might be wondering: What makes an auto loan a good deal? Why should I shop for an auto loan? When it comes to buying a vehicle, finding the right loan is just as important as finding the right car. One major benefit of finding a great deal on an auto loan is that you will spend less in the long run. The most effective way to ensure that you are getting the best deal is to spend time researching potential loans. As you search for the best deal on an auto loan, you will need to consider the interest rates offered, the loan term length, and potential discounts.
When you purchase a vehicle or refinance an existing auto loan, you have options about who will hold the loan. You are not required to get a loan from the dealership that sells you the car. In fact, most often, the car dealership will have the highest interest rates on vehicle loans. Other lenders include banks, credit unions, and online lenders. Typically, credit unions will offer the best loan terms, and you have the added bonus of a personal relationship with your lender.
An interest rate is the amount a lender charges a buyer for the use of the lender’s assets. Interest rates are expressed as a percentage of the original amount borrowed. Interest rates vary widely from lender to lender, so it is good practice to ask what interest rates your lender is willing to offer and to ask many lenders what rates they can give you. The national average interest rate is around 5.7%, but interest rates can be as low as 2.5% and as high as 12%. Additionally, lenders like United Credit Union frequently offer deals for new customers, usually offering reduced interest rates for a set period of time. Interest rates are important because they will determine how much you will pay for the loan in total. A lower interest rate means that you will pay less in fees over the term of the loan because more of your monthly payment will go towards paying the principal rather than towards interest fees.
Loan Term Length
While many buyers tend to look for the lowest monthly payments when shopping for auto loans, the best way to think about the payments is how much you will pay in total. Only considering the amount of your monthly payments can blind you to what you will actually pay on the loan. Loan term length determines how much you will pay for the car and all the fees, taxes, and interest associated with it. Longer loan terms seem like a great idea because the monthly payments are lower, but they carry higher interest rates and you end up paying more on interest in the long run. Even though monthly payments might be higher with short-term loans, shorter loan terms tend to be cheaper because you will pay fewer fees and less interest over the term.
As you look into different lenders, be sure to ask if you qualify for any discounts. Often, discounts are available to first-time buyers, to buyers who are willing to sign up for automatic draft payments, or to buyers who are switching to their business for the first time. Additionally, discounts are sometimes available for students, educators, and veterans.
Navigating the technicalities of varying interest rates, loan terms, and loan entities can be dizzying, but our loan specialists can help you understand the inner workings of auto loans and assist you in getting the best auto loan for your situation. Whether you’re purchasing new, used, or looking to refinance a vehicle, United Credit Union offers great low rates and flexible terms. Give our auto loan specialists a call at 888-207-2188 to set up an in-person meeting.