September 16, 2021

The Must-Know Facts Before You Get a Car Loan


Buying a car is not an investment. That is because cars depreciate a lot. This is a good enough reason not to pay interest on that auto loan. And the rate of depreciation is faster than the rate you are repaying the loan, which means you will owe more than what your car is worth.

Yet, we still need cars to commute to work and move around but don’t have spare cash to go into a showroom and pick a nice ride. That leaves you with the option of car finance. But while approaching a lender is a great idea, using it wisely is just as important. In this article, we tell you the things you need to know before you get that car loan.

Know the rate you are approved for

One of the most important things you need to do before you even get to choose your car is to determine the most appropriate way of car finance. Generally, you have two options for financing your car purchase. The first is where you know the terms of finance in advance (through a lending institution or a bank. The other option is to be financed by the dealership. 

Choosing to work with a lending institution like a bank ahead of will save you much needed time at the dealerships after negotiating the price of the vehicle you want to buy. If you choose to try other car finance options, knowing the terms of the loan in advance not only makes the process better but also gives you a basis on which to compare. This enables you to know if the rate you have been offered is the lowest best or if there is a better deal.

If you are thinking about taking a car loan, below are some facts you will find useful:

  • The interest rate that you will get is determined by how good or bad your credit history is.
  • While people are attracted by a low APR (annual percentage rate), loan terms like a shorter repayment period may mean that you pay a higher monthly installment.

Understand the factors that Affect Your Payment

Irrespective of the method of car finance that you choose, you need to understand the impact your loan terms will have on your monthly installment and the entire cost of the loan. APR, for instance, has a somewhat smaller impact on monthly payments. Other factors have a bigger effect:

  • The size of the loan and down payment

A higher down payment or a smaller loan amount is sure to diminish your monthly payment.

  • The term

While a longer term of repayment results in lower monthly payments, you will end up paying more interest in the long run.

Know the merits and demerits of a 0% vs. Cash rebates

During your search for a car loan, you will find dealerships offering promotions of no-interest financing or cash rebates for a new auto purchase. While the offers appear enticing, you first need to weigh their merits and demerits. There are times when a cash rebate coupled with a low-rate loan can be a better option than a 0% APR. When a cash rebate is intended to reduce the overall vehicle cost, it could decrease the loan amount, leading to savings. Make sure you find out the repayment terms of the loan if you are eligible for a 0% APR car loan. You can then use an online auto loan calculator to see how it compares to a low-rate loan with a rebate that lowers the amount of the loan.

Choose between a new and used car

Many first-time buyers are faced with the question of choosing between a new car and a used one. It’s tempting to arrive at this decision entirely based on the cost. In truth, however, there is a lot more to consider than simply the sticker price. For example, buying a used vehicle means less depreciation, although you should brace yourself for higher repair and maintenance costs.

New vehicles, on the contrary, are likely to attract lower interest rates and also have lower repair and maintenance costs.

Understand what differences are there between a lease and a loan

To know the differences between these two options, think of it in the mold of renting vs. buying. When you buy, you pay for the total cost of the car, and it does not matter how long you plan to use it. With leasing, however, the only time you pay for the cost of the car is when you rent it. Below are more factors to help you decide between these two options of owning a car:

  • How much will you drive?

Leased cars have a cap regarding the mileage that you can put on them. Understanding the limit protects you from mileage fees.

  • Do you care for your car properly?

It’s a requirement to return a leased car in good condition. Otherwise, you might be hit with a wear-and-tear penalty.

  • Do you expect any significant life changes?

Owning a car allows you to dispose of it to suit your changing circumstances, for instance migrating to a new city or even welcoming a newborn baby. While some manufacturers will allow you to transfer or sell a leased car it often comes with a fee for terminating a lease agreement prematurely.

Remember that leasing a car may come with an option to buy it after the end of the lease period.


Irrespective of the car that you want to purchase, doing your homework will help you to prepare better before you approach a dealership. Your research should not just be about the type of car to buy, but also about the best methods of car finance.

Also, it pays to know the differences between buying a new vs. a used car and the pros and cons of a 0% APR compared to cash rebates. Understanding these small nuances will put you in a stronger position when negotiating for better rates.

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