7 Important Questions to Ask Yourself When Looking at Car Loan Options

Taking out a car loan can be a great option for purchasing a new car. But before you start searching for both cars and loans, you should ask yourself the following seven important questions.

1. How much of a down payment will I need?

You need to ensure you know how much of a down payment you will need to pay when applying for a car loan.

Typically, down payments are around 20%. You need to ensure you can afford the down payment and make sure it doesn’t drain your savings before you start looking at car loan options.

2. What will the interest rate be?

You need to know how much the interest rate will be on the loan you are considering getting to make sure that you can afford the repayments.

Interest rates can vary from one lender to another, so it is important that you compare different lenders to find the lowest interest rate. 

You should also find out whether you will need to pay for any other costs, such as processing and verification fees.

3. Can I afford to make the payments?

Once you know things like how much the interest rate will be and how much the loan repayment amounts will be each month, you can work out whether you can comfortably afford to make the payments throughout the duration of your car loan term.

4. Could I get a better deal for a different brand of car?

If you cannot afford the repayments for the type of car you are interested in buying, you have the option of selecting a different brand of car that will not cost as much.

You can use an online car loan payment calculator to help you understand what kind of car would best suit your budget.

It may be easier to afford a car loan for a Honda than a Bentley or Rolls Royce, for instance. In fact, Hondas are often popular choices, so if you are considering getting a loan for a Honda, check out these Honda financing offers.

5. Does my credit score affect my ability to get a car loan?

Your credit score most definitely will affect your ability to get a loan and the amount you can potentially borrow.

A good credit score can open doors and enable you to get excellent rates. On the other hand, if you have a poor credit score, you could struggle to be accepted for a car loan.

Therefore, if you have a poor credit score, it could be worth improving it, by doing things like paying off outstanding debts and always paying your bills on time, so that you can take out a car loan for the brand of car you want.

6. How long should my car loan tenure be?

You should look for a car loan tenure that is as short as possible so that you do not have to continually have a loan hanging over you and so you can pay off the loan quickly.

Furthermore, interest rates tend to be lower for shorter loans. But you should look at the difference in costs and fees for short-term and long-term car loans to discern what the best option for your specific circumstances is.

7. Can I pay off the loan faster?

You may want the option to pay off your car loan faster than the timeline detailed in your loan agreement. It can often make financial sense to pay off your loan earlier to become debt-free if you are in a financial position to do so.

But you need to make sure there are no penalty fees in place for paying off your loan more quickly to ensure you do not end up actually paying more than you would if you stuck with the agreed tenure of your loan.