Managing Expectations

If you're buying a vehicle, and decide to go the financing route, you're going to encounter a few things that may surprise you. Sometimes you can get a loan even if you didn't think it was possible. Sometimes getting a loan is a bad idea. Different situations will have different outcomes. With that in mind, several key features you should expect to encounter if you're seriously considering financing a vehicle include the following:

  • A Down Payment Will Be Necessary
  • Loan Approval Exists For Most Credit Scores, Good Or Bad
  • Used Cars Tend To Have Higher Interest Rates For Auto Loans
  • Repossession Is More Streamlined Than Ever

A Down Payment Will Be Necessary

It is pretty unlikely you'll find a situation where no down payment is necessary. There are situations where "no money down" deals are yelled over the radio, but there's generally a catch. Going the "no money down" route for an auto loan generally means one of two things: either you had to trade in a vehicle, or you will end up paying higher monthly rates on the loan.

Either way, the companies managing such lending don't lose their "pound of flesh", to quote the old Shakespeare play. So expect a down payment of between $1k and $5k, depending on the vehicle. The higher your down payment, the less the overall cost of the vehicle owing to deferred interest.

Loan Approval Exists For Most Credit Scores, Good Or Bad

Don't be surprised if, even though you know you've got the worst credit in the world, you're approved for a car loan. There are a few different reasons for this; one of the most notable is interest. Basically, if you've got bad credit, all that really means is you're going to get an auto loan with really high interest. The worse your credit, the higher the interest.

So if you've got "good" credit, at the top of the scale, you can expect the rate to be between 4% and 5%. If your credit is on the bottom of the scale, then you are going to pay 14% to 20% in terms of interest. Here's a link to a site that gives a table of interest costs for auto loans based on credit score.

Used Cars Tend To Have Higher Interest Rates For Auto Loans

Something else to consider: the sort of car you buy will impact the sort of interest you're ultimately on the hook for. The newer the car, the smaller the interest rate (generally).

A used car is going to have higher interest because the price of the vehicle is lower, meaning the person who finances an auto loan for one will have it paid back quicker. Lending agencies want their money back, so they charge high interest. With used vehicles, it's best to buy outright if you can.

Repossession Is More Streamlined Than Ever

Be careful to make payments on time when financing a vehicle. The people who have been assigned to "keep you honest" don't care about the situation that caused you to miss payments, they care about protecting the assets of their employers. Most cars come with some sort of tracking device when financed as a means of assuring lenders don't get left high and dry by unscrupulous individuals.

Know The Lending Landscape

When financing, there are four primary things you should think about. There are generally down payments, bad credit won't keep you from getting a loan in most cases, used cars have higher interest, and tracking devices streamline repossession. When applying for an auto loan, expect these items to impact the situation.

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