Finding an Auto Loan That Fits Your Needs
September 17, 2024
Purchasing a car is a significant financial decision, and finding an auto loan within your budget is an important part of the decision. Before shopping for an auto loan, you need to assess your financial situation thoroughly. To find the best loan for your needs, you should evaluate the following key areas.
Your budget before and after a car purchase
Before exploring loan options, consider your financial goals. Evaluate your monthly income, expenses, and debt to determine that you can comfortably afford a monthly car payment. Having an assessment of a realistic budget can help avoid overextending yourself. You also should factor in the added costs of car ownership outside of a loan payment. Routine maintenance1, including oil changes, tire rotations, and multipoint inspections, costs roughly $800 yearly or about $66 monthly. Research the current market to understand the typical costs of vehicle ownership, insurance, and car upkeep based on your location and potential car model.
Your credit score
A higher credit score usually means a lower interest rate, which can reduce your monthly payments. If your score needs improvement, consider boosting your credit before applying for a loan. Affinity offers credit counseling resources2 for members.
Your loan options
Determine how much you need to borrow based on the cost of the vehicle and your down payment. A larger down payment can reduce the amount you need to finance and will ultimately save you on overall interest paid. The average new car loan3 payment across all credit scores is $729 monthly. Avoid borrowing more than you need, which could lead to higher fees and interest rates.
Once you have gathered information on different loans, evaluate which options best suit your financial situation and goals. Consider monthly payment affordability, total loan cost, and repayment flexibility. Comparing these factors will help you choose a loan with the best terms and affordability. Be sure to shop around with different lenders to get the best rates. Remember, credit unions like Affinity often offer competitive rates4 and flexible terms on auto loans and refinancing.
Pre-approval
Getting pre-approved for a loan can streamline the car-buying process and give you a clearer idea of your budget. Pre-approval involves a lender reviewing your financial information and providing a loan offer based on that information. It can also help strengthen your position in negotiating with car dealers.
To secure the best rate on an auto loan, focus on three key factors: your credit score, your loan term, and the lender. Auto loan rates are trending downward, so understanding what you qualify for will help strengthen your ability to find the right loan.
This information is for informational purposes only, is intended to provide general guidance, and does not constitute legal, tax, or financial advice. Each person's circumstances differ and may not apply to the specific information provided. You should seek the advice of a financial professional, tax consultant, and legal counsel to discuss your particular needs before making any financial or other commitments regarding the matters related to your condition.
1Retrieved from: https://www.aaa.com/autorepair/articles/what-does-it-cost-to-own-and-operate-a-car
2Retrieved from https://www.affinityfcu.com/financial-wellbeing/credit-counseling
3Retrieved from:https://www.experian.com/content/dam/noindex/na/us/automotive/finance-trends/
4Retrieved from: https://www.affinityfcu.com/about-us/rates