These are four things you shouldn't overlook when considering a car loan:
- A deposit to reduce your repayments. A deposit is a percentage of the purchase amount that you pay upfront. While taking out a car loan to pay for a car then dishing out, say, 20% upfront may seem counterintuitive, you'll be grateful later. Generally speaking, the higher your deposit, the smaller your monthly payments will be, and the faster you'll be able to pay them off. But you don't need to have a deposit in order to get a car loan, although it could improve the chances of your application being approved.
- A short loan term. Loans for a car can last between one and seven years, although five years is more typical. Shorter is better, because you avoid the situation of still owing a lot of money on a car that is rapidly declining in value.
- A low comparison rate/APR. When buying a new or used car, don't just look at the advertised interest rate, because it doesn't include the cost of any fees associated with the loan. The comparison rate is a more accurate representation of the total amount you'll pay each year, including upfront, monthly and annual fees.
- Few penalties: Always read the fine print. Sometimes, car loan contracts have clauses about early payment penalties, late payment fees, and even payment processing fees. Read the terms and conditions carefully before committing.
