Auto Loan Basics

Key Takeaways

  • When getting an auto loan, you want to be sure you know what’s involved so you are not caught off guard with hidden fees or payments.
  • The elements to consider when getting an auto loan are your budget, savings, credit score, amortization, depreciation, and buying new or used.
  • You can get a loan through a dealership, but be sure to check on deals straight from financial institutions as well.

Do you remember that first paycheck you received, when you thought you were going to get $150 dollars, but ended up with $120? When you took a look at your paystub to figure out what happened, you saw FICA, federal and state taxes were withheld. It was kind of a shocker to you.

The first time you get an auto loan can be a real shocker as well. It’s very important to understand what you are up against, and what elements make up an auto loan so you aren’t caught off guard by hidden fees or costs you were not prepared for.


1. Your budget. This is very important! You need to be clear on what you can actually afford so you are able to make your payments on time. You also have to remember that above the actual price tag you see on a car at the dealership, there could be a sales tax, depending on the state you are in, there’s vehicle registration, title fees, license fees, and finance fees. All of these extra costs need to factor in to your overall budget.budgeting-responsibly

2. Savings. You may have to make a down payment depending on your credit score. If your credit score is in the 600 range, you will have to put 10% down on the vehicle to get a good rate,        so you’ll need to have some savings set aside. You won’t be able to put 0% down unless you get a co-signer.

3. Credit Score. As previously mentioned, your credit score matters. If you have a 700 or above, you can put 0% down and get the best interest rates.  credit-score-circles       

4. Amortization. Interest and principal is how a loan gets paid off. Early in the life of the loan, you pay more interest up front, and less principal. As your loan ages, you pay more principle and less interest. Check out the following websites to learn more about amortization rates on a loan:



5. Depreciation. Your car depreciates, meaning the value drops over time, approximately 20% in the 1st year, and 10% in the next year. So at year two of owning your car, you’re 30% off of what you paid for it. It may take you two to three years to even be able to sell your car and pay it off because of that.depreciation-expenses-2014

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6. Buying New or Used. You might go for a used car or an inexpensive new car in order to stay within your budget.

When you decide to get your auto loan, you can go to the dealership as they usually have relationships with several financial institutions that will each offer different deals. You may want to consider checking out the institutions for yourself by going directly to them and asking what their deals are. Ultimately, you want to ensure the dealership is not up selling or up charging you by going through them.

You also want to look at keeping the down payment low if you can, but that’s a matter of building up your credit score.

These are all the things you want to keep in mind and plan for when you go shop for your car.

Until next time, enjoy. Gary

Please note: I reserve the right to delete comments that are offensive or off-topic.

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