If you are thinking about buying a vehicle, knowing what an auto loan is and how it works is very important and can help you make a good buying decision. All car manufacturers and financial institutions of different types have this system.
An auto loan works like this: the financial institution buys the vehicle, whether new or pre-owned, and you as the customer will pay for the car in monthly, semi-annual or annual installments, depending on its value and your ability to pay.
These car loans include an interest rate, which is an extra amount of money to be paid for the loan, in fixed or variable installments. The installments can vary from 6 to 60 months depending on your profile and the bank or institution offering it.
In many cases you have to pay a down payment, an initial amount of money, of approximately 20% of the value of the vehicle, although in others they cover the financing up to 100%.
How to apply for an auto loan.
The first thing you have to do is meet the requirements that almost all institutions request. In general, they include: proving a minimum income, presenting proof of address, having a good credit history and being of legal age.
Once you are approved, you need to sign a contract that establishes the conditions, obligations and rights of both parties, which you should read carefully.
Some of the things that are detailed in this contract are: how you will make the payments, whether the vehicle will be delivered to you when the loan is paid off or before, the amount of the down payment, the financing term, the interest rate and what happens if you don’t pay the loan within the stipulated time.
The decision to take out a loan will depend on your purchasing power, ability to pay and professional activity. It is a personal decision, but you should always consider the importance of being able to pay the installments on time.
Before applying for an auto loan, we suggest that you:
– Make an analysis of your budget and do not make a decision without knowing all the options, setting a maximum amount that you can pay monthly.
– A long-term credit reduces the amount of the installment, but increases the interest rate, so you will be paying more money than if you pay it in fewer installments. Compare different terms and add up the total amounts to see what the difference will be.
– Find out if the loan has the option of paying the principal (paying a higher amount than stipulated in the contract), since the sooner you start contributing, the less you will have to finance, decreasing the amount of the final interest.
Get information and compare the term of the credit and the amount to pay that suits you best. Consider that you will have to pay monthly, in addition to the interest rate, operating expenses, taxes and, in some cases, additional insurance.