A Car Loan - Know What You Are Signing

A new car is second only to a home as the most expensive purchase many consumers make. According to the National Automobile Dealers Association, the average price of a new car sold in the United States is $28,400. That’s why it’s important to know how to make a smart deal.

A used car may be better for you and is certainly less costly, but you probably still need a car loan to afford to make the purchase.

If you decide to finance your car, be aware that the financing which is obtained by the dealer may not be the best deal you can get. Take time and contact lenders directly. Compare the financing they offer you with the financing the dealer offers you.

The last time I took out a car loan, I had all arrangements made ahead of time; the amount I could borrow, the interest rate, the payoff terms. Offers vary so shop around for the best deal, comparing the annual percentage rate (APR) and the length of the loan. When negotiating to finance a car, be wary of focusing only on the monthly payment. The total amount you will pay depends on the price of the car you negotiate, the APR, and the length of the loan.

Sometimes, dealers offer very low financing rates for specific cars or models, but may not be willing to negotiate on the price of these cars. To qualify for the special rates, you may be required to make a large down payment. With these conditions, you may find that it’s sometimes more affordable to pay higher financing charges on a car that is lower in price or to buy a car that requires a smaller down payment.

Before you sign a car loan contract to purchase or finance the car, consider the terms of the financing and evaluate whether it is affordable. Before you drive off the lot, be sure to have a copy of the contract that both you and the dealer have signed and be sure that all blanks are filled in.

Some dealers and lenders may ask you to buy credit insurance to pay off your loan if you should die or become disabled. Before you buy credit insurance, consider the cost, and whether it’s worthwhile. Check your existing policies to avoid duplicating benefits. Credit insurance is not required by federal law.

If your dealer requires you to buy credit insurance for car financing, it must be included in the cost of credit. That is, it must be reflected in the APR. Your state Attorney General also may have requirements about credit insurance. Check with your state Insurance Commissioner or state consumer protection agency.

It's also important to realize there are no banking laws or regulations that address when a national bank may repossess your vehicle. Technically, if your payment is one day late, you have defaulted on your loan.

Each bank may set its own policy on the conditions of default that will trigger repossession. (These conditions of default are included in the loan contract.) When you accepted the loan, you accepted these conditions. You should contact the bank if you have questions about the terms of your contract.

Dealer Financing