Are you thinking about purchasing a vehicle but don’t have enough money saved? Luckily, you might qualify for a car loan. Car loans come in a variety of options, dependent upon the lender and your needs. To determine what type of loan you qualify for and should take advantage of for your next vehicle purchase, use this guide to get started on the car loan process.
Types Of Car Loans Available
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Most car buyers utilize loans to finance their new rides. With the right type of auto loan combined with a convenient payment plan, you can purchase your vehicle with a financial option that meets your needs. Before you come down to Panama City Toyota, read through this sampling of what types of loans are available.
- Secured auto loans: With these types of loans, the vehicle acts as collateral for the debt. If you fail to make payments, the lender can repossess the vehicle and resell it. Since these loans are less risky for lenders, the loans tend to have lower annual percentage rates (APR) compared to unsecured loans. This is the most popular type of loan for many auto sales.
- Unsecured auto loans: A less common option, this type of loan comes with higher interest rates than secured loans. The exact rate depends upon your credit profile and other factors. There is no collateral with this loan, so if you miss a payment, the lender uses legal means to obtain the missing funds.
- Simple interest loans: These loans calculate interest on a predetermined basis, typically daily. During each month, interest is calculated based on the amount of outstanding principal of the loan. The amount of interest you pay each period decreases with each payment as you work toward paying off the principal. You can make larger or additional principal payments to accelerate the payoff.
- Precomputed interest loans: With these loans, you have a set payment schedule where each payment has a specific portion going toward the interest and principal. The amounts never change, even if you pay off the loan early.
- Lease buyout loans: Although not very common, these loans give you full ownership if you leased a vehicle. At the end of your lease agreement, the lender pays the lease buyout fee upfront, and you make fixed payments over a predetermined timeframe. Once you pay off the principal, the lien is lifted and you own the vehicle.
- Military auto loans: If you’re an active-duty service member, a spouse of one, or certain dependent, you might qualify for one of these loans. Under the Military Lending Act, unsecured loans are capped at 36% APR and face no prepayment penalty.
Before You Apply
When applying for an auto loan, you should do some homework before heading to the dealership. Check your credit score to make sure there aren’t any discrepancies, such as fraudulent activity. You are entitled to one free credit report every 12 months from each of the three major reporting organizations: Equifax, TransUnion, and Experian. Having inaccuracies could cause you to be turned down for a loan or offered only a higher interest rate. Make sure you get any errors fixed before you apply for the loan.
If your credit score is around 600 or lower, that is considered subprime or poor. It’s best to spend at least six months improving that score if you don’t need to purchase a vehicle immediately. Make your payments on time and pay down credit card balances to help bolster your score.
Use an online auto loan calculator to estimate payments and other loan factors by inputting the variables that you know. Include information such as your down payment, estimated trade-in value, and the length of the loan. Go into the meeting with the finance department armed with this information as it can guide you in making an informed decision.
Auto Loan Process
You can fill out a convenient online credit application before you entire the dealership to determine your loan options and get pre-approved for financing. You will need to provide some personal information, such as your Social Security number, salary, assets, and current debts. Remember that most dealerships offer these applications with no obligation, so you’re under no pressure when you make your final decision.
After completing the application and/or other financing documents at the dealership, the loan officer looks at several aspects, including:
- Your detailed credit score
- Available down payment and potential trade-in
- Debt-to-income ratio
- Price of vehicle you want to purchase
The lender will merge the information from the application with data from your credit report to secure your debt-to-income ratio. This ratio is a solid indicator of your ability to pay off the loan you are requesting.
What If You Have Bad Credit?
Sometimes life throws you curveballs, and you might not be prepared to hit them. If you’re in a sub-prime credit situation due to foreclosure, bankruptcy, divorce, or simply missed payments, many dealership-based finance departments can help you with purchasing a vehicle. In-house finance specialists can offer several alternative financing packages to suit your particular situation.
Oftentimes, choosing the lender at the dealership instead of opting for a third-party lender can help you save money, as the dealership is the same entity profiting from the vehicle sale. The dealership might be more willing to give you additional financing options than a third-party lender would.
You could also opt to bring in a cosigner who has good credit to cosign the auto loan for you. By consigning, the person agrees to pay the loan back if you cannot. If the cosigner cannot pay either, both of your credit scores can take a bit hit.
Apply For A Car Loan At Panama City Toyota
As a full-service car dealership, Panama City Toyota commits to serving all drivers in the Panama City, Florida, area. We want you to walk through our doors, find the vehicle of your dreams, take it for a test drive, and drive off the lot with it. Our on-site finance staff can help you even if you have less-than-perfect credit. Don’t waste another minute thinking you don’t qualify for a car loan. Reach out to our dealership today, and speak to one of our finance staff to get the process started.
