how do i get a car loan? a basic overview to understand the basics of getting a car loan
TRANSCRIPT
How do I get a Car Loan?
A basic overview
To understand the basics of getting a car loan
If you have cash…• Use it, buy the car!
I have cash but…• I don’t have the full asking price of
the car.
I have cash but…• I don’t have the full asking price of
the car.– Use what you have as the down
payment on the car.
I have cash but…• I don’t have the full asking price of
the car.– Use what you have as the down
payment on the car.– A good goal is 20% down payment.
I have cash but…• I don’t have the full asking price of
the car.– Use what you have as the down
payment on the car.– The more $ you put as a down
payment, the lower your monthly payment will be.
I have cash but…
• I don’t have the full asking price of the car.– Use what you have as the down
payment on the car.– The more $ you put as a down
payment, the lower your monthly payment will be.
– Also, the more $ you put down, the less interest you will pay.
The Loan• Who do I borrow the money from?
The Loan• Who do I borrow the money from?
– There are several possibilities:• Your bank/credit union. If you have a
savings/checking account your bank may offer you a loan.
The Loan• Who do I borrow the money from?
– There are several possibilities:• Your bank/credit union. If you have a
savings/checking account your bank may offer you a loan.
• A third party bank. This is a bank that you don’t have an account with, but they frequently do business with the car dealer and will extend you a loan. The dealer will collect info from you and submit it to the bank while you wait.
The Loan• Who do I borrow the money from?
– There are several possibilities:• Your bank. If you have a
savings/checking account your bank may offer you a loan.
• A third party bank. This is a bank that you don’t have an account with, but they frequently do business with the car dealer and will extend you a loan.
• In the case of a new car dealer, through them. GM, Ford, Chrysler have their own lending institutions.
The Loan• Who do I borrow the money from?
– There are several possibilities:• A third party bank. This is a bank that you don’t
have an account with, but they frequently do business with the car dealer and will extend you a loan.
• In the case of a new car dealer, through them. GM, Ford, Chrysler have their own lending institutions.
• Buy Here, Pay Here. Watch out! A BHPH dealer finances you themselves, but charges extremely high interest rates
What kind of interest rates are we talking
about?• New Cars vary from 0% up to 8%.
What kind of interest rates are we talking
about?• New Cars vary from 0% up to 8%• Used car loans vary from 5% up to
10%
What kind of interest rates are we talking
about?• New Cars vary from 0% up to 8%• Used car loans vary from 5% up to
10%– Remember the better your credit
score, the lower your APR will be!
What kind of interest rates are we talking
about?• New Cars vary from 0% up to 8%• Used car loans vary from 5% up to
10%– Remember the better your credit
score, the lower your APR will be!
• A BHPH loan can vary from 12% up to 25%.
Sample Loan Calculation
• Here's an example of how the math on your auto loan is done:
– If you take out a $15,000 auto loan from your credit union with a 7.5% APR to be repaid over four years, you will owe $362.69 every month. Over a year, those payments would total $4,352,28. Over the life of the loan, you'll end up paying $17,409.12. That's $2,409.12 in interest over the 4 year life of the loan.
Questions to Ask?• 1. What is the APR?
Questions to Ask?• 1. What is the APR?• 2. What is the term? (length of the
loan)
Questions to Ask?• 1. What is the APR?• 2. What is the term? (length of the
loan)– The longer the loan, the more interest
you will pay!
Questions to Ask?• 1. What is the APR?• 2. What is the term? (length of the
loan)• 3. Are there any fees associated
with the loan?– Is there an early payoff fee?
Questions to Ask?• 1. What is the APR?• 2. What is the term? (length of the
loan)• 3. Are there any fees associated with
the loan?– Is there an early payoff fee?
• 4. Are there any finance charges? (other added fees for getting the loan)
Shop Around• It would be a good idea to get a
quote from three different lending institutions before signing a loan.
Buy or Lease• Remember the second you drive a
used or new car off of the lot, it begins to depreciate in value.
Buy or Lease• Remember the second you drive a
used or new car off of the lot, it begins to depreciate in value.– Some estimates say the new car
depreciates 20-30% the minute you drive it off the lot.
Buy or Lease• Remember the second you drive a
used or new car off of the lot, it begins to depreciate in value.– Some estimates say the new car
depreciates 20-30% the minute you drive it off the lot.
• Despite that, and interest rates, buying is still a better option financially speaking
Buy or Lease• Despite that, and interest rates,
buying is still a better option financially speaking.
• With a lease, you are usually required to make a lump sum payment up front, then monthly payments for the term of your lease.
Buy or Lease• Despite that, and interest rates, buying is
still a better option financially speaking.• With a lease, you are usually required to
make a lump sum payment up front, then monthly payments for the term of your lease.
• Those payments are less than loan payments, but at the end of the lease you have no car to show for it, just a stack of paid bills
Buy or Lease• Those payments are less than loan
payments, but at the end of the lease you have no car to show for it, just a stack of paid bills.
• The only scenario where it maybe financially feasible, is if you can use your lease as a business write off.
Summary• 1. Go to your bank, get some
rough numbers and figure out what you can afford
Summary• 1. Go to your bank, get some
rough numbers and figure out what you can afford
• 2. Save as much money as you can for a down payment, it will save a lot of interest in the long run
Summary• 1. Go to your bank, get some
rough numbers and figure out what you can afford
• 2. Save as much money as you can for a down payment, it will save a lot of interest in the long run!
• 3. Check out three different loan offers before deciding