An auto loan is typically needed to get the keys for a new ride. Here’s all you need to know about auto loans and the factors that impact your payment.
How do auto loans work?
When you get an auto loan, you’ll have the funds you need to buy the car in one lump sum. You’ll pay the money back each month over the duration, or term, of the loan. This generally lasts 5-7 years.
Where do I apply for an auto loan?
There are two main sources for auto loans:
- Direct lenders.This includes credit unions like MSGCU or banks. MSGCU can pre-approve your loan to make car shopping easier and give you greater negotiating power at the dealership. We also offer competitive rates as low as 5.24% for new and used vehicles, and an easy online application with quick approval and no fees.
- Dealership financing. A dealership loan may come with a higher interest rate, encouragement to purchase add-ons, and longer loan terms that cost more in interest over the life of the loan. It’s important to compare loan numbers from dealerships and direct lenders to ensure you’re securing the best interest rate and an ideal payment for your budget.
What will my monthly payment be?
Your monthly payment amount is determined by several key factors:
- The loan amount. The amount you borrow will be equal to the value of the car you’re purchasing (and, if applicable, any add-ons). You can reduce the cost by making a sizable down payment or trading in your old vehicle.
- The annual percentage rate. Usually referred to as “APR,” this is the effective interest rate you pay on your loan. Interest is the cost of borrowing money from a lender like MSGCU. It’s calculated as a percentage of the principal amount (the amount you borrowed to purchase the vehicle) and is added to your monthly car payment. The interest rate on your loan will depend on factors like your credit score, the length of the loan term, current market conditions, etc.
- The loan term. The typical length for most auto loans is five years, but some lenders will let borrowers stretch the term to seven years or even longer. A longer-term loan means paying less each month, but it also means paying more in total interest over the life of the loan.
- Additional costs. If you’ve rolled other expenses into your auto loan, including taxes and registration, optional add-ons like Mechanical Repair Coverage, Guaranteed Asset Protection (GAP) insurance, or any other products you choose to finance, they will also be included in your loan principal. While these may increase your monthly payment, they could also help you save in the long run. Mechanical Repair Coverage can help limit unexpected repair costs as your vehicle ages, potentially saving your budget from unforeseen expenses in the future. GAP insurance comes in handy if your vehicle is stolen or totaled in an accident and the insurance company declares it a total loss. They will issue a check for what the vehicle is worth, but this is not necessarily the amount you owe to pay off the loan. GAP insurance kicks in to cover the difference between what you owe and what the insurance company pays, reducing your out-of-pocket expenses.
How can I score the lowest interest rate on my loan?
- Shop around for a lender. Get quotes from several lenders to find the one that offers the lowest rate.
- Boost your credit score. In the months before you apply for an auto loan, take steps to enhance your credit score, including paying all bills on time, working to pay down outstanding credit card balances, and refraining from opening new credit cards. MSGCU members can view, monitor, and get personalized tips for improving their credit score for free in MSGCU’s Mobile App and Online Banking. And you can read more about credit scores here.
- Borrow less than you qualify for. A smaller loan amount generally means a lower interest rate.
If you’re ready to close the deal on a new car, apply online for an MSGCU auto loan and take advantage of our competitive rates that can help save you money. Our team members make the loan process easy and are here to answer any questions you have. We can also review your budget to help you determine the right loan term for you. Contact us by phone, chat, or video banking, or stop in one of our 24 convenient branch offices.
Category: Finance
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