How Low Rate Car Loans Can Actually Cost More
Buying a new car is an exciting time in anyone’s life. You want to make sure you get the car of your dreams and, of course, you need to choose the best car loan as well. After all, the price you end up paying is not what the car invoice says, it is what the loan costs. Let’s say you buy a car for $20,000 and you get a car loan for that amount over five years at 11% per annum interest. The monthly repayments would be $430.90 and over the five years you would repay a total of $25,853.91, and that is what the car really costs you.
That’s why choosing a car loan is really more important than choosing the car, or least equally as important. It also means that you may be susceptible to advertising because it is easy to think that choosing a car loan at a low rate will be cheaper than one which is quoted slightly higher.
But, that is not always the case as we will see in a moment.
When choosing a car loan is important to look at all the fine print before you sign a contract. You need to do plenty of research on loans before you even start looking for a car because you are likely to be at able to negotiate a better price if you can make a certain offer at the time you want to purchase. You don’t need to keep the dealer on hold while you go away and get a car loan and you will not be susceptible to accepting a finance deal from the car dealership.
Here are a few tips on getting the best car loan.
- Obtain a preapproval from lender of your choice before you start shopping. Making a cash offer for a car can often give you an added advantage when negotiating the best price. A preapproval gives you this option.
- Get quotes from a number of lenders before you choose which loan you want.
- Check out the fine print before making a decision. This means making sure there are no monthly fees to pay or any exorbitant application fees or early repayment fees.
- Do a budget before you make a decision, after all you need to live with your budget not the banks. The last thing you need is to have an expensive car loan that inhibits your lifestyle meaning you cannot enjoy the car you have just purchased!
Now, let’s see how a low rate car loan may in fact cost you more than you expect.
Let’s use the above example again and assume you are borrowing $20,000 over five years at 11% interest. The monthly repayments will be $430.90 but, if the lender charges a $10 monthly account keeping fee, as some lenders do, your minimum monthly repayment will effectively be $440.90. This equates to an interest rate of 12.04%, and this is the figure you should use when comparing offers from various lenders.
Car loans are not all our cracked up to be when you only look at the surface. You need to dig a little deeper to get the real facts.
