For many people, the only way to access private transport is to take out a car loan. These loans can be like the modern automobile - complicated and with many hidden components and moving parts. It's therefore essential to have a basic understanding of car finance before making any agreement, especially on interest rates and the contract period.
Figures from the Consumer Finance Protection Bureau show almost 90 percent of people go to work in cars, making them an indispensable part of life. This has also increased car loan debt. Federal Reserve data from 2015 shows that total debt surpassed the $1 trillion mark.
Here are two tips for consumers considering a potential auto loan:
- Examine the contract period. Over the years, auto loan terms have been getting longer, allowing people to take advantage of lower monthly payments. This also means that interest expenses become higher, so it is important to save money by getting as short a contract period as possible. Otherwise, a loan may outlive the car, especially when buying a used car.
- Compare lenders and their interest rates, as these often vary. Choosing a loan with a lower rate will reduce the cost of the loan, making car ownership cheaper in the long run. Shorter loans may be more expensive per month, but they may also have lower interest rates.
If you are interested in a new auto loan, visit our curated list of top lenders.