How to Compare Car Loans

Comparing auto loans can be tricky because there are different types, depending on the type of vehicle to be financed and the lender. These loans can be divided into two main types – variable rate and fixed rates ones, each with its pros and cons. Many banks offer variable rate car financing with competitive rates of interest, allowing buyers to repay the credit quickly while interest is low. At the same time, interest rates fluctuate and go up and down. It is difficult to come up with figures for the total interest charges to be paid on the loan. The total cost and monthly payments also increase when the interest rate goes up.

Loans with fixed interest rates allow borrowers to budget their monthly payments. Interest rates will not increase if the market rates go up. The downside is that it is more expensive than the variable rate variety and are even more expensive when the market rates loan compare

Looking at interest rates is one way to compare car loans, but there are other things to watch for. Deciding which way to go is often confusing because dealers and manufacturers feature a variety of promotional deals. For example, some companies offer financing with no payments during the first year. While this sounds like a good deal, the payments may be jacked up to compensate for what you did not pay during that year. Promotional deals can be a good starting point, and you can choose between a cash manufacturer’s rebate and cut-rate financing. So, what is a good deal – pocketing a large rebate or snapping up a very low interest rate? It depends. To begin with, all car buyers are eligible for a cash manufacturer’s rebate, and this isn’t true for low interest rates, which depend on the borrower’s credit rating.

One way to find out which option is better is to make a financial deal vs. rebate comparison. Say you want to finance a vehicle and must choose between a 4-year, $12,000 loan at a 3 percent interest rate and a 4-year, $12,000 loan at 9 percent, offered with a $1,000 rebate. Take half of the money and multiple it by .06, which is the difference between the two interest rates (.09 – .03). This will give you an idea of how much you can save a year if you choose the lower rate. Then multiply $6,000 by .06 for a total of $360. The next step is to multiply $360 by 4 (the number of years you will be making payments). The answer is $1,440, and this is the amount you will save if you choose a financing at a lower rate of interest. Given that the cash rebate is $1,000, you will save an additional $440 by choosing the low-rate option. You can use an online calculator if you don’t want to do the math.

Obviously, borrowers with excellent and very good credit scores benefit from both. They can get low-rate auto financing from a mainstream institution and take the rebate from the car dealership.

When shopping for financing, there are different options and providers to look into – online companies, banks, and dealerships. Internet-based lenders offer car financing at competitive interest rates and advertise quick and easy application process, leaving you free to focus on negotiating the price. Auto dealerships, on the other hand, often bump the interest rates of the finance companies and banks they work with. Thus, if you have other options, it is wise to explore them.