4 Crucial Questions Millennials Should Ask Before Getting an Auto Loan

Buying a car is a huge life step. Having the freedom to drive wherever you want is a joyous feeling that is hard to match. Many millennials will need to look into financing options while buying their first car to achieve that goal.

Not to worry! There are many options available to help millennials buy their first car, depending on their financial situation. Here are four crucial questions to ask that can give you more information, so you can get behind the wheel stress-free.

This article comes from the office of a busy Philadelphia bankruptcy lawyer.

1. What should I do before applying for an auto loan?

Before making any large purchase, it’s always essential to examine your financial situation and figure out how much you can afford. Tally up your monthly expenses (rent, food, utilities, etc.) and then figure out how much more you’d be able to spend. Free digital apps like PocketGuard allow you to complete this budgeting process more easily.

Once you’ve added up your expenses, see if you’d be able to take advantage of an auto loan to buy a new or used car. Auto loans are paid back to the lender in monthly installments, with interest. The time it takes to pay back an auto loan varies, but it’ll usually be between 36 and 72 months.

You also may want to save up some more cash for a larger down payment on your first car. Down payments can aid in the negotiation process for your auto loan. They can save you money and reduce the time on your loan term. We also recommend checking your credit score before applying for a loan or financing your first car.

2. How can I check my credit score?

We’re glad you asked! You can get a free copy of your credit score from the three credit reporting agencies--Equifax, Experian, and TransUnion--once every twelve months. You can order a copy of your annual credit report from any one of these agencies. You’ll also typically be informed of your credit score after applying for an auto loan.

If you don’t have an excellent credit history, then don’t worry. You have the option of bringing a co-signer sign onto your loan or finance contract. The co-signer will take on equal responsibility for making monthly payments. Ensure that both of you know the contract’s specific terms and can properly afford the payments.

3. Where can I get an auto loan?

Auto loans can come from a few different places. These include:

• A bank
• A credit union
• A car dealership

Different options can be better depending on your particular financial situation. If you already have a good relationship with your bank or credit union, for example, you may be able to get a lower interest rate on the loan you apply for. This also removes any middleman from the process, eliminating any extra loan fees.

You can also choose to finance your car directly from the car dealership. This option makes the process a bit easier. Car dealers will usually give you the option of applying for loans from a few different auto loan lenders. Be aware that the car dealer will charge a fee for arranging the loan.

Ask your auto dealer if they have any incentive or low-rate financing programs available. These may require a stronger credit rating.

4. How much do auto loans cost?

That’s a good question, and it depends on a few different aspects:

• The APR, which is the annual percentage rate. This is the auto loan’s interest rate that you’ll be paying. Your lender will decide the interest rate. If you have a lower APR, then you’ll be paying less money to your lender over time.
• The time of your loan term. As said, this is usually between 36 and 72 months, though your situation may be different.
• The amount of down payment when purchasing your car.
• The principal, which is the lump sum of money you’re borrowing to pay back with your auto loan.

The critical factor to pay attention to is the interest rate, and how much interest you’ll be paying on your loan over time. We recommend putting in a large down payment that can fit your budget, as well as designing a long-term car payment plan. Compare different auto loan lenders, their loan terms, and interest rates to find a financing option that is right for you.

Financing your first car may be an overwhelming and complicated process, but it can be easier than you think. By asking the right questions and getting the proper information, you can get the right auto loan that fits your budget, and buy the car you’ve been waiting for.