Whether this is your first auto loan or your fifth, understanding car loan offers isn’t exactly easy. Here are some definitions to help:
APR: Your APR shows you how much your loan costs, including interest and fees. The higher your APR, the more expensive your loan.
Repayment terms: Your loan term is how long you have to pay off your car. Car loan terms generally range between 12 and 84 months. Choosing a longer term can mean a lower monthly payment, but you may pay more interest overall.
Fees: Car loans come with fees. Some are mandatory, like registration fees and sales tax. Other dealer fees, like warranties and protection packages, are extras you can decline.
Lender reputation: Unfortunately, predatory lenders tend to target borrowers with bad credit. As of this writing, you can check the Consumer Financial Protection Bureau (CFPB) complaint database to see how your lender does business before signing any paperwork. You can also read lender reviews to confirm that other consumers have had a positive experience with your lender.
Prequalification and preapproval: Auto loan prequalification estimates your eligibility based on a soft credit check that doesn’t affect your credit score. It gives you an idea of what to expect with loan offers. Preapproved auto loans go one step further. They involve a hard credit check that will slightly hurt your credit score, but provide a clearer picture of what loan terms to expect.
Crunch the numbers
Chief credit analyst Matt Schulz warns borrowers to fully understand what they’re paying for before signing any paperwork. “Make sure you understand all of the major costs associated with the loan,” he says. “Along with higher interest rates, bad credit car loans can also come with higher fees and other fine print that must be taken into account when comparing offers.”
