When purchasing a used car, it involves more that just picking out a vehicle and taking it for a test drive. The majority of individuals these days also need a car loan. Used car loans are available at pretty much every used car dealership you visit. Before applying for credit, do your research and get a car loan that meets your budget. In this article, I have constructed 5 steps in calculating monthly payments for used car loans.
Step 1:
Figure out what you can afford before shopping for a used vehicle. Find out what monthly payment fits your budget and you are very comfortable with. This is very important. If you end up with a monthly payment that you can barely manage, you will be looking for reasons to get rid of the vehicle, other then enjoying your purchase.
Step 2:
When calculating a monthly payment for an auto loan, it isn’t simply the vehicle ticket price divided by the number of months in the loan. You must also include the interest rates, which, in Ontario, vary from 4.7% to 29.9%. You can estimate what your interest rate may be by determining your current credit situation. Usually, if you can get approved at the bank for a car loan, you interest rate will be low, but if you have had past Reno’s, claimed bankruptcy, bad credit or no credit at all, estimate your monthly payment at 29.9%, which is worst case scenario.
Step 3:
There other fees to add to the ticket price of the car as well. At times, there can be administration fees, licensing fees, warranty costs and upgrades. Take these into consideration when calculating your monthly payment. Also, don’t forget to multiply the vehicle ticket price plus additional fees by your state or province sales tax. In Ontario, we are currently paying 13% sales tax on the purchase of a used car. This would be calculated by.13. Add all these to determine your monthly car loan payment.
Step 4
At this point you should have a total that you are looking to find out the monthly payment on. Keep into consideration the term of the car loan. These typically range from 3 years (36 months) to 5 years (60 months). Most financial institutions will finance a vehicle that is 7 years old or newer. The older the vehicle, the smaller the term. For example, currently being 2010, a 2003 will get a term of 36 months and say a 2005 may get a term of 48 months. Car Loans are also determined by the mileage of the vehicle. Normally, financial institutions will finance vehicles under 180,000km.
Step 5
Enter the following formula to an Excel spreadsheet to get your answer quickly: “=PMT(r,n,P).”
If you are trading in a used car or putting a down payment on the vehicle, remember to subtract this from your total purchase price.
Posts Tagged ‘ Auto Loan ’
Smart car buyers know the advantages of getting pre-approved for a car loan before entering a dealership. Because dealerships have shady practices that involve charging higher interest rates and fees, many people choose to secure private financing and compare various auto loan offers. One way to get a low rate on an instant car loan is to have good credit. Here are three tips on improving credit before applying for a car loan.
Auto Loan for People with Good Credit
Regardless of credit rating, almost everyone can get approved for a car loan. Auto loans are secured, thus lenders have easy lending requirements. In their mind, it’s a win-win situation. If a person with bad credit defaults on the loan, the lender simply repossess the vehicle and re-sells it. However, because individuals with bad credit are charged higher fees, lenders are able to recoup some of their loss.
Unfortunately, many auto finance companies also charge good credit borrowers higher rates and fees. Because the majority of car buyers are unfamiliar with the auto buying process, they fail to take the necessary steps to ensure a low rate.
Know Your Personal Credit Score
Many people do not know their credit score. They likely know their credit category: good, fair, bad, etc. When determining an interest rate on auto loans, lenders review credit scores. If your score is above 680, you are a prime borrower and entitled to a low rate.
However, deceitful lenders do not inform borrowers of the prime credit rating, and charge more interest. To avoid this scam, car buyers should obtain a copy of their credit report and score before applying for a loan. This way, you have an idea of the rates you may qualify for.
Boost Credit Rating
Try using one of ABC Loan Guide’s
Recommended Instant Approval Car Loan Companies.
Because instant car loan approvals are usually based on credit scores, maintaining a high or good credit rating is essential. Credit reports can be ordered and viewed online. If your score needs improvement, attempt to boost score by a few points before applying for a loan. This may entail paying bills on time, limiting number of credit inquiries, reducing debts, or settling past due accounts.
Oct
How do car loans work?
There are a lot of things to consider when obtaining an auto loan. Your credit score, length and amount of credit history, and your source and amount of income. You’ll also want to consider that for many people they’ll need a co-signer on their first auto purchase. This person can be a family member or a friend.
In order to qualify for a car loan you need to find a bank or lending institution and apply (fill out an application). The lender will process the application and either approve or deny your application. Once approved they determine how much money they can lend you, how long they are willing to lend it and what interest rate they will charge you.
In extremely simple terms, when you find the car you want, you apply to the bank (or lending institution) for a loan. If approved, the bank pays the owner (or car dealer) for the car. The owner (or car dealer) is no longer in the picture. Any issues are now between you and the bank. You now owe the bank for the car whether it is a running car or piece of junk unless the previous owner offered a warranty.
Keep in mind that it is possible to be accepted for car loans even if you don’t meet the above requirements (credit history, co-signer, source of income). Obviously, you have to have a source of income, but you can receive a car loan without much credit history. The downside to this is that your monthly payments may be more expensive because the seller is taking a bigger risk on someone with out credit history.
Nowadays, it is easier for college students to purchase their own automobile. Many bankers, and even car manufacturers, now specialize in tailor made vehicle loans for college students.
For a college student, especially one who has not yet established a credit record, it is certainly very simple to obtain a car loan if you have a co-signer. By asking a parent or guardian to cosign the loan, you are able to receive the funding much quicker and possibly lower your interest rate, assuming the co-signer has a good credit rating. This is an excellent way to assist your college age child and still give the student the responsibility of making the monthly payment. When your loan is co-signed it means that if you fail to make the payments on time, your co-signer will be held responsible and the lender will ask that person to pay.
If you are a college student with debt and little credit, it will be difficult, but not impossible, to obtain a loan without some type of guarantor or collateral. There are many financial companies with websites that do offer bad credit college student loans, but you will pay a much higher interest rate. However, no matter what your credit might be, if you make your payments in full and on time, in about a year you can apply for car loan refinancing and receive a lower interest rate for your auto loan.
Additionally, try making as much of a down payment as you can afford, at least 20% of the purchase price. Not only will this lessen your monthly payments, but it will show the lender that you are serious about this purchase as you have some of your own money tied up. You may also be able to find some dealers or manufacturers who are offering rebates for students. At the very least you can ask for this and may get some type of discount.
Finally, consider the type of car you are purchasing. I know a sports car is every college students dream, but you have to consider the additional costs involved, over and above the actual purchase price. Insurance is extremely expensive for a brand new hot sports car, and gas is outrageously priced these days. Your best option is to go for a simple, reliable, economical car, as your first purchase. Establish your credit by making your payments on time and when you graduate you will be able to get the car of your dreams.
Car loans for people with poor credit are possible to get. However, there are a few things that you need to know if you want to qualify for such a loan.
The best way to get a car loan with bad credit is to work on fixing your credit history. Most people don’t want to spend the time to do so and want the ability to instantly take out an auto loan. However, by spending a solid year or two repairing your credit, you can save up a nice down payment on the car and get good credit. After a couple years, you will have booth good credit and a down payment. Getting an auto loan at this point will be virtually assured.
If you want auto loans for people with very credit right away, then your options are going to be much more limited. You may be able to take out such a loan from conventional lender like a bank, but these institutions don’t like giving out loans to people with poor credit. This means you will probably have to seek out a bad credit lender to get a car loan with poor credit history.
Car financing for people with poor credit will always end up costing you more money with increased interest payments. You will need to look at whether getting a car now with more money is more important than getting a car later with less money.
However, know that is possible to get car loans for people with bad credit.