8 Questions to ask your auto lender

The options available to a car buyer have never seemed greater: flexible loan-term lengths, varying Annual Percentage Rates (APRs) and even zero-percent APR financing. And the lenders vying for your business seem to be proliferating as well. The trick is to arm yourself with information before going loan hunting and to talk with several lenders. As interest rates rise, be sure to compare multiple loan offers to find the deal that’s right for you.

Go through the following questions with a prospective lender when shopping for a car loan:

  1. What documentation do I need? Your lender will most likely require income statements, a list of employers, account numbers and current balances on other loans, and current banking statements. Call ahead and ask what’s needed so you can have everything ready and can get your loan quicker.
  2. How much do I need for a down payment? The greater your down payment, the lower the cost of your loan and the sooner you can pay it off. Typically, every additional $1,000 you put toward a down payment reduces your monthly payments by $50 a month. A substantial down payment can also help you to avoid going upside-down on your loan – owing more on your loan than the car is worth. However, if you don’t have a lot for a down payment, there are still many options available.
  3. How will my credit rating affect my loan? Typically, the better your credit rating, the better your chance of getting lower interest rates. The zero-percent financing that’s advertised by many car dealers is often only available to people with impeccable credit ratings. If you don’t know your current credit score, click here to order your credit report today.
  4. What will my monthly payments be? Your monthly bill will probably include principal, interest, taxes and other fees that will vary depending on your lender. The lender may suggest you lower your monthly fees by extending the loan term. Try to avoid this as you risk going upside-down on your loan. You will also pay more total interest charges in the long run.
  5. How much interest will I pay? Your interest payments will vary depending on the lender and your credit score. Each lender will evaluate your credit rating in different ways, so the interest rate you are offered can vary widely from one source to the next.
  6. What is my APR? The APR is usually higher than the base interest rate because it includes your interest rate (which, as stated above, will vary depending on your credit rating and where you live) plus other fees. The APR is usually the best way to compare loans, because it is calculated to include all borrowing costs.
  7. Will I go upside-down? The best ways to prevent becoming upside-down on your loan have already been mentioned above: put more money down and arrange for the highest payments and shortest loan term you can afford.
  8. Can I make extra payments? Ask your lender if extra payments are possible and if there’s a fee or penalty attached. If the fee isn’t too high, putting more money towards your loan will help pay it off faster and you will pay less in the long run. Make sure that all of the extra payment goes toward the principal.
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