Asking your lender the right questions before you apply for a used car loan will save you lots of money and trouble. Whether you are getting a car loan for the first time, or not, understanding the process is key. Before signing your car loan application, get answers for each of the below questions.
What is the interest rate?
This is the most important number you need. This will help you to know specifically how much you'll pay in interest over the life of the loan.
What is the minimum down payment required?
Your down payment or lack thereof, relative to the amount you're financing, may also affect the interest rate you'll be charged when you buy a car .
What is the 'Term'?
The 'Term' or repayment period of your loan is the length of payment. Typically on used car financing, this may be anywhere between 24 and 36 months, depending on your loan amount. Your Term will also help you decide the monthly payments you are comfortable with. For instance, let's say you're financing $18,000 on the purchase of a used car at 10% interest rate. On a term of 24 months, your monthly payments will be $887. On a 36-month term at the same 10% interest rate, your monthly payments will be $615. You can see a difference of $272 monthly between the two terms.
What's the monthly payment?
Your monthly car payments, in part, depend on your loan interest rate. Get the exact figure from your lender before you purchase the car, so you can factor this into your financial obligations. You can use our free car loan payment calculator to find out your estimated cost of ownership for a car.
What costs will be charged on this loan?
Car loans come with fees for various services that lenders and other parties provide in processing your loan. These may include fees for requesting your credit report, loan origination, and car title application. Your lender may ask that you pay for these costs up front.
Is there a Prepayment penalty on this loan?
Ask your lender if there are any prepayment penalties for paying off your loan early. Even if there's none, your car loan contract may stipulate that you may not be entitled to a refund of the prepaid finance charges if you decide to do so.
What are the late charges on this loan?
Lenders reserve the right to charge you for paying your monthly car note late. Typically, the late fee may be 5% or more of the unpaid portion of your regularly scheduled payment or a specific dollar amount, regardless of any partial payments the lender has received.
What do I need to provide?
Apart from proof of income, and/or assets, a lender typically would require that you purchase comprehensive insurance coverage before giving you the loan. They will also ask to see proof of this coverage, during the application process. So contact your lender to find out what documents will be required for your car loan application.
What could possibly delay the approval of my loan?
All things being equal, your car loan application's processing should proceed with ease if you provide your lender with complete and accurate information. Barring any past credit problems, repossession, or bankruptcy, you shouldn't have any delays in your loan processing.
Should I purchase additional credit insurance?
Be careful on this one. Some lenders make extra money by selling you life and disability credit insurance policies. Call your insurance agent if you have one, before you make such a decision.
Can I review my loan documents?
Yes! Read the loan agreement thoroughly before you sign it. Make sure you understand every word in it, and ask questions if necessary. Get clarification on any items on the agreement you don't understand. Check your APR rate, loan term, monthly payments, and most importantly the loan default clause.