Whether you're looking to buy a new or used car, there's a good chance you'll need to take out an auto loan to help you pay for it. Of course, there are many factors that come into play when you apply for and get approved for an auto loan. Your credit and other aspects of your finances will play a major role in your approval terms, including your interest rate. Before you sign off on an auto loan, there are a few other things you'll want to know, too.
Are There Any Pre-Payment Penalties?
Paying ahead on auto loans, even by just a few dollars per month, can save you a significant amount in interest and can help you pay off your loan sooner. Still, some lenders will charge a prepayment penalty if you make more than the required monthly payment or otherwise pay off your loan early. It's important to be aware of these fees and how much they could cost you when you begin exploring your borrowing options.
Do You Have a Grace Period?
Nobody anticipates being late on a car payment, but it can happen. For that reason, it's good to know what kind of grace period your loan has built-in, if any. For example, if your payment is officially due on the 1st of the month, some lenders may have a grace period that doesn't result in a penalty so long as you pay by, say, the 8th of the month. Become familiar with your grace period and penalty terms before you sign on a loan.
How Much Interest Will You Pay in Total?
Aside from knowing your annual interest rate on an auto loan, you should also be aware of exactly how much you'll end up paying in interest by the time you pay off the loan. Remember that the longer your repayment term, the lower your monthly payments will be but the more you'll end up paying overall.
What Are Your Insurance Requirements?
Finally, when you have a vehicle that's financed, you typically are required to carry more than the state minimum of insurance coverage until the vehicle is paid off. Be sure to research your insurance requirements and understand how much that coverage is going to cost you, especially if you need to carry comprehensive and collision coverage.
By getting to know your auto loan, you can go into it with more confidence!
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