Sarah T.
Lots of cars are bought and sold each year. In 2022 alone, ConsumerAffrairs suggests that over 52.2 million vehicles—both lightweight and heavyweight—were bought or sold. That’s a pretty big number, especially when you compare it to the U.S. population. And since your typical car will get you about 200,000 miles or 12 years, provided you want to drive it for that long, the chances are that you will buy or sell a car several times in your lifetime.
But if this is your first time buying a car, you likely have questions. How do you buy a car? What goes into the process? And how do you pay off your loan?
In this article, the team at RateWorks will tell you what you need to know. We’ll help take the confusion out of the car buying process and we’ll tell you how to pay off your loan and protect your credit.
Deciding to Buy a Car
Let’s start with what goes into the decision to buy a car. For most people, intentions include upgrading to a newer model, replacing an older vehicle that’s no longer reliable, or needing a car for a first-time driver in the family.
Sometimes, it’s about life changes—moving to a new city, expanding your family, or starting a new job with a longer commute. Whatever the reason, buying a car is a big financial decision that requires careful planning.
Determining Your Needs and Setting a Budget
Before you start car shopping, you need to figure out what you need and what you can afford. Failing to do this beforehand can set you up for disappointment and can cause your emotions to take over. The result? Buying the wrong car for your needs and financial situation.
So, are you looking for a spacious vehicle for family trips, or do you need something compact for city driving? Setting a budget helps you focus on cars that fit within your financial reach. Remember, beyond the sticker price, you’ll need to consider costs like insurance, fuel, and maintenance.
New vs. Used Cars: Pros and Cons
Choosing between a new and used car is one of the biggest decisions. New cars come with the latest technology, warranties, and often lower interest rates. However, they depreciate quickly—losing about 20% of their value in the first year.
Used cars, while more affordable upfront, may come with higher interest rates and fewer guarantees. Carefully weigh your options based on your needs and budget.
Key Factors to Consider: Fuel Efficiency, Size, and Features
Fuel efficiency, size, and features like safety technology or entertainment systems should all influence your decision. Consider your typical driving habits to choose the right car for your lifestyle.
For example, if you drive 100 miles a day and don’t have kids or need to haul a bunch of stuff from point A to point B, a vehicle with low gas mileage might not be the right decision.
Importance of a Credit Score in the Car Loan Process
Your credit score will play a big role in determining your loan terms. A higher credit score often means a lower interest rate and better loan approval chances, saving you money in the long run. Checking your credit before applying can help you know what to expect and give you time to improve it if needed. Know that the average U.S. credit score is currently around 717. However, the closer you can get it to 750 or above, the better.
Understanding Your Car Financing Options
Now that you’ve done your homework on the type of car you need, your budget, and your credit score, you must decide between two options.
- Will you pay cash for your car purchase?
- Will you explore financing options?
If you are thinking the latter option is the best choice for you, know that you are not alone. Roughly 80% of new car purchases are financed. But it’s important to know that there are several loan options available. This is something to think through, too, before your jump in. Why? Because knowing what you are getting into can help you with that loan pay-off process later.
Be aware of the following things when looking for the best auto loan financing.
- Variable Interest Rate: Your rate can fluctuate; paying off the loan early may secure lower introductory rates.
- Fixed Interest Rate: The rate stays constant throughout the loan, with a lower rate being more favorable.
- Loan Terms: Repayment periods typically range from 36 to 72 months, with RateWorks offering up to 75 months. Longer terms mean lower payments but more interest over time.
- Taxes and Fees: Mandatory costs include taxes and registration, while negotiable fees might include destination or paint protection. Always confirm the total fees before purchasing.
What to Know About the Loan Pay-Off Process
Now that you have found the car of your choice and you know the loan terms that you can expect, it’s time to start planning your payments. The amount of your car payment can vary greatly based on the total amount you finance, the interest rate you have been approved for, and your loan term. Using a loan calculator can help you understand what to expect.
That said, here’s what you need to know about paying off your loan.
- Set Up Auto-Pay: Automating your payments can help you avoid missing due dates and negatively impacting your credit score.
- Watch for Early Payoff Fees: Some loans have penalties for paying off your loan early. Check your loan agreement for any early payoff fees before making extra payments.
- Consider Refinancing: If interest rates drop or your credit score improves, refinancing could help you get a lower rate or extend your loan term. RateWorks offers auto refinancing options that could lower your monthly payments and save money over the life of the loan.
- Avoid Missing Payments: Missed payments can hurt your credit score and lead to late fees or repossession. If you’re struggling, talk to your lender about payment options.
- Make Extra Payments: Paying more than the required amount can reduce your loan principal faster, saving you interest costs over time—just make sure there are no prepayment penalties.
- Review Your Loan Regularly: Keeping an eye on your loan balance and payment schedule helps you stay on track and avoid surprises.
Be Prepared for Your Car Purchase and the Loan Pay-Off Process
Buying a car, whether it is your first, last, or somewhere in between, is exciting, stressful, and sometimes confusing. It’s interesting to experience all these emotions mixed into one purchase experience. But it’s true, and that’s why it is so important to do your homework before buying a car and before signing on the dotted line of any auto loan agreement.
The message is clear—if you feel you won’t be able to meet your loan payments and obligations, you might be looking at the wrong ca, or this might not be the best time for you to make an auto purchase. Further, if your circumstances change and you want to get a better interest rate or extend—or shorten—those loan terms, auto refinancing is a great option, and RateWorks can help.
Get a free quote today.
