Shopping for Car … Financing?

by DCU |

Americans spend an average of nearly 15 hours researching and shopping for a new or used car purchase. But how much time will you spend researching the types of financing available? Auto loans are not one-size-fits all, here’s a guide to the most common types of auto loans.

Secured Loans

Most vehicle loans are secured loans, in which the lender secures the vehicle as collateral on the loan by assuming the role of lienholder. A lien is a form of security interest granted over an item of property to secure the payment of a debt as part of the loan agreement. Because the lender has a vested interest in the car, it will have to approve the purchase to ensure they – and you – are getting a fair deal. Your credit will also be reviewed before a secured loan can be approved.

Unsecured Loans

An unsecured auto loan does not require the use of the car as collateral, and instead the loan is extended based on the borrower’s credit history. If your credit is not in tip-top shape, this can mean a higher interest rate. However, if you have great credit and can secure a good rate, you are free to choose any car you want … so long as you can repay the loan and avoid a serious ding to your credit.

Simple Interest Loans

If you are highly motivated to pay your loan off early, a simple interest loan may be for you. With a simple interest loan, the interest is calculated on the amount of the principal (amount you owe) at the time of payment. If you are able to make more frequent or larger payments and pay down the principal, this type of loan can save you money.

Pre-computed Interest Loans

In this case, interest is pre-calculated and divided equally amongst monthly payments. There is convenience in knowing what your monthly payment will be, but your interest payments will stay the same, even as your principal decreases.

Borrowing on the Spot, on the Lot

Most car dealerships work with several lenders and will claim to try to get the best financing for you – but when you give up control, it can come at a cost. Some dealers provide financing through the car manufacturer – which may include special introductory interest rates and other deals. In-house financing is when the independent dealer provides the loan – which can frequently be attractive for those with lower credit scores – and can result in higher interest rates.

Direct Financing

Borrowing from a trusted financial institution like DCU allows you to shop for the best rates and other terms, secure financing in advance, and in many cases, shop with preapproval, which can help you negotiate with the dealer.

Quick Tips to Cut Car Costs

  1. Drive smoothly, not aggressively.
  2. Speeding, rapid acceleration, and hard breaking are quick ways to waste fuel and possibly increase wear and tear on the vehicle.

  3. Keep your tires inflated to the proper level.
  4. Under-inflated tires can cause your fuel mileage to go down.

  5. Do easy maintenance yourself.
  6. If you’re handy or have a family member or friend who is, replace wiper blades, fuses, and lights yourself.

  7. Go easy on the AC.
  8. A car’s air conditioning can quickly reduce fuel economy. Let hot air out with the windows down before turning on the air conditioning, and consider running it at a higher temp to help save costs.

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