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Everything You Need to Know About Auto Loans

In today’s society, zero percent financing has extended beyond the realm of vehicles and into other mainstream categories. The credit card industry is a prominent example. This merely due to the outrageous success of said zero percent financing. However, despite the concepts overwhelming success, only a third of people who apply for this zero percent financing is actually approved. Following that up, only a mere ten percent of people who get accepted even buy vehicles. These statistics come from the National Automobile Dealers Association (NADA).

Why are only a third of people being accepted?

It may seem quite confusing at first. If it’s so popular shouldn’t there be more? Well, the answer is quite simple. In order to be accepted into the zero percent financing group, your credit score has to be extremely good. In fact, the majority of people who get accepted have credit scores that are nearly perfect.

It’s incredibly important to note that when a buyer receives this zero percent financing and goes to buy a car, they are often paying far too much. Why is this you may ask? Once again, the answer is very simple and straightforward. They think they already got the best deal they’re going to get! Many believe that zero percent financing is the end of the road! But guess what?! It’s not! For example, many zero-percent financing deals are set up to be “0% down or $10,000 cashback”. The $10,000 is often lost because it is the actual cost of borrowing.

Below you’ll find a chart laying out the facts of the matter.

Annual Percent Rate Zero Percent 6.95 Percent
Vehicle Cost $29,000 $29,000
Less Rebate $0 $5,000
Amount of Finance $29,000 $24,988
Monthly Payment $625 $596
Overall Cost $29,999 $28,608
What You Save $0 $1391

Keep in mind that the above statistics are based on a legitimate vehicle displayed on the web. The vehicle in question is a mid-size sedan from 2015. Also, these statistics are based off a study done within 48 months.

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When looking at the above chart, you’d only have to take a quick look at the savings bar to weigh your best option. Let’s do the study again, but this time, make the car pre-owned and have 10,000 kilometers already on the vehicle. It’s important to note that this is merely an example and that you can only qualify for zero-percent financing when buying a new vehicle.

Annual Percent Rate Zero Percent (New) 6.95 Percent (Pre-Owned)
Cost of Vehicle $29,000 $19,999
Less Rebate $0 Not Applicable
Amount of Finance $29,000 $19,999
Monthly Payment $625 $478
Total Cost $29,999 $22,944
Amount Saved $0 $7055

As the above chart obviously shows, your auto loan rate is far better off when going with the 6.95 percent option rather than the zero percent financing option. This just goes to show how misleading many of these significant or “special” deals can be.

Types of Car Loans

When discussing auto loans, there are several types to consider. Often people end of payment much more than they should, simply because they don’t understand what options they may or may not have. Below we’ve put together several options, and along with them their descriptions.

  • Brand New Car Loans

    This loan often involves a vehicle that is being purchased straight from the dealership and is one that has below 10 kilometers on the odometer. The rates for this particular loan are fixed and are intent upon allowing you to pay off your new car quickly and efficiently without demolishing your bank account.

  • Used Car Loans

    This particular type of loan involves covering the payments for used cars. The rates for this type of car loan often depend on the mileage of the vehicle, the age, the make and model, and of course the condition of the vehicle.

  • Private Party Car Loans

    Private party car loans are simply loans dealt out from people who are not a dealership or large company, but rather, a private seller. These loans are often up to the discretion of both parties involved and can be for new or used cars. Keep in mind, these loans do not have to be for used cars exclusively. Many people buy new cars and immediately sell them to provide options for those looking for car financing.

  • Lease Buyouts

    When leasing a car, you have the option to buy it once your fees are paid. This type of auto loan helps you do just that.

  • Auto Refinancing

    In order to reduce your monthly payments, many people trade in existing vehicles. This allows you to pay off your current debt far quicker.

  • Buy-Here-Pay-Here

    Loans This option is usually up to the discretion of private individuals and is used most by those with poor credit.

Fixed-Rate Car Loans Versus Variable Rate Car Loans

  • Fixed-Rate

    With a fixed-rate car loan, you have several assures. For one, your interest rate is known to be locked in for your entire chosen term. Also, you’ll know the exact amount of interest you’ll have to pay off by the time your auto loan is complete. To top this off, should something go wrong, you can switch to variable rates at any time.

  • Variable Rates

    With variable rates, you have a lot more room in regards to saving money. When interest rates fall low, you have a good chance of saving some money. If you were on a fixed rate, you wouldn’t save any, as your interest rates won’t change. The fall back for variable rates is that if interest rates lift, you’ll either have to switch to a fixed rate or pay more.