Auto Loan FAQs

If you are in the market for a car loan, you probably have a number of questions. Asking questions can save you a lot of confusion, time, money, and frustration. Get all the facts right up front. You never want to be surprised when it's time to sign the loan papers. No one wants to see an unwanted fee or an interest rate higher than what is expected. Compare the information from several lenders to see which is the most cost-effective.

Prepayment penalty

You may want to find out if there is a prepayment penalty for paying your loan off early. If you receive a large windfall, you don't want to be penalized for an early payoff. Try to get a loan that has the least amount of fees and penalties as possible. A prepayment penalty can prove to be costly. Some lenders will only have a prepayment penalty in effect for a certain period of time such as three or five years.

Interest rate

When you apply for your auto loan you will probably want to know what your interest rate will be. Your credit file will determine what rate you receive. The higher your credit scores, the lower rate you receive, which ultimately saves you money in finance charges. To get the best rate possible your credit score should be at least 680 or higher. Some of the items that contribute to a good credit score is paying your debts on time and not maxing out your credit cards. Pay down your debt as much as possible prior to applying for your loan.

Fees

Some lenders will charge you an application fee. Always ask what types of fees are involved in the loan process. Certain fees can be waived by the lender at your request. You could be charged a fee if you apply with a bad loan lender. Any fees you receive contribute to your cost of borrowed funds.

Term

When you finance a loan you may be concerned about the term. Find out what your term will be. If you know the payment amount that will be comfortable, the lender can probably match you with the appropriate term. Terms can be as long as 72 months in some cases. The newer cars have longer terms to help consumers afford the payments. Other factors that contribute to your payment include the amount borrowed and the interest rate.

Application process

You may want to know how long it takes for the application process. Usually it takes a few minutes to submit your application, and a decision will be made in approximately 24 hours. A decision can be reached sooner in certain situations. Some lenders will have an answer for you in minutes when you apply online for your auto loan.