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Ask These Questions Before You Get an Auto Loan

Ask These Questions Before You Get an Auto Loan

Auto loans can be a perplexing business. With all the financial jargon, small print, and variables to consider, it’s easy to get overwhelmed as a borrower. However, asking just a few simple questions before you sign your loan documents will help you understand your agreement better and make a more informed decision. Lenders are not always the most forthcoming folks when it comes to disclosing important details, so sometimes you have to be proactive in soliciting the information for yourself. By asking the following nine questions, you can be sure you’re getting the financing and the terms you want.

  1. What is my real interest rate? The best indication of the interest you’ll pay on an auto loan is the APR, or Annual Percentage Rate. All lenders must calculate this number in the same way.
  2. What penalties does my loan include? You will need to ask if the financing has prepayment penalties and, if so, how much they are. Also ask about any hidden charges or other extra charges that might occur throughout the life of the loan.
  3. What is the exact amount I’m paying for the car? It’s important to understand the difference between the vehicle purchase price and monthly payments.
  4. What is the exact amount I’m financing? This is the total amount you will have to repay your lender, which will be higher than the vehicle purchase price.
  5. What is my finance charge? The finance charge is the dollar amount you pay for the extension of credit.
  6. What is the exact dollar amount of each monthly payment? You always want to know this figure so you can be sure it fits into your monthly budget. It also doesn’t hurt to ask the lender to break the payment down into the portion that goes toward interest and the portion that goes toward principal just for informational purposes.
  7. What is the total number of payments on the loan? Remember this may change if you decide to pay the balance off early, but this number will represent how many payments you’ll make if you pay according to the schedule.
  8. Is this loan contingent upon approval from another party? If you finance at the dealership, the dealer will farm out your loan to a third-party source. Dealers sometimes quote you a rate only to call you back two days later to let you know that you weren’t approved for it. Make sure you know who your lender is and whether you’re approved before you leave the car lot.
  9. Do you require credit insurance? This is not a federal requirement, but state laws vary. Some lenders offer or even require credit insurance. If this happens to you, shop around to make sure you’re getting the best policy.

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