So you’ve found the perfect vehicle, now you just need to figure out how to pay for it, from dealership finance to obtaining an online car loan there are several options available. Let’s learn about the importance of knowing your car loan.
In this blog post, we will go over some of the basics of understanding your car loan with fixed vs variable rates and dealer finance vs car loan to help determine which option is best for your personal situation.
There are two main types of loans for buying cars, fixed-rate & variable-rate:
A fixed-rate loan is the “typical” type of car loan. It’s what most people think when they hear the word, “car loan.” A fixed-rate loan will have consistent interest rates throughout the term – meaning it won’t change. Fixed-rate car loans may have a small early payoff penalty, but they provide peace of mind by locking in your interest and repayment rates for the duration of the loan.
With a variable rate car loan, your interest rates will fluctuate over time based on market conditions such as inflation and credit history. The rates will fluctuate as the market changes, but your monthly payments should stay about the same. These types of loans often come with better early payout conditions than their fixed-rate counterparts.
Once you’ve decided on the type of rate that is best suited for you the next step in understanding your options is dealer finance vs car loan.
A dealer may offer in-house financing for the car you are looking to buy. This is called, “dealer finance.” The interest rates offered by a dealership will be favorable because they have access to loans at lower rates than if you were going through another financial institution like an online bank or credit union.
Dealerships can also offer another perk that is not typically found with other types of car loans: the ability to trade in your current vehicle for a lower interest rate. Dealer finance programs are usually limited to new cars, whereas car loans can be taken out for new or used cars for sale from dealerships or private sellers. Be wary though as low finance rates offered by dealers could be a sales ploy to encourage the sale of the vehicle at a higher price.
A car loan is when you get the money for your car from a bank or other financial institution. The interest rates are typically higher than dealer finance, but they offer more flexibility with loan terms and repayment options.
A big benefit of getting financing through an online bank is that you can easily find out how much it will cost to repay over the course of the term. You can also compare the costs of different institutions and see how they might save you money in interest over time, making it easier to find an affordable car loan for your situation.
Choosing the right options with fixed vs variable and dealer finance vs car loan can have a big impact on your monthly payments, total interest paid over time and more. This is why understanding these basics is an important step in choosing the best finance option for your personal situation.