How to Get a Car Loan (The Right Way)

Now, I bought my first car when I was 20 years old and I was so stupid because I got a 200 dollar loan loan for seven years at 17% interest. So please don’t do what I did because I didn’t do any research and I took really bad advice from my friends on how to grow my credit. 

And we all know that bad advice will always lead to really stupid decisions.

And now on to the content that you’ve been waiting for. Now I’ll start by saying that financing a car is basically broken into three different parts. But you’ve got to understand how these different parts work in order to not get screwed. 

As the consumer, we’ll be looking at the amount borrowed, the interest rate and the length of the loan. Those are the three different parts that you need to understand. These three different numbers will determine what you can or can’t afford as a monthly car payment. 

So pay attention and just remember that a monthly payment doesn’t determine what you can actually afford until you apply what I’m talking about. Now, starting with the amount borrowed, this will be your entire car purchase plus any taxes and fees and any money that’s left from a previous car loan. 

It’s basically everything you need to borrow from the bank in order to purchase your car. Now make sure to do the research on the car that you’re buying so that you can get the best deal possible. And please don’t pay full price for extended warranties or carpet cleaning, anything like that because those prices are all negotiable. 

Just remember to get the best price possible on your car purchase. And feel free and watching my car Buying negotiation video if you need help in this area. Now, as far as the interest rate goes, this is just the amount of money that you have to pay back the bank in order to even have your car loan. 

Now, in order to get the best interest rates, you’ve got to have excellent credit or you’ve got to have a Cosigner that has excellent credit in order to make it happen. And if you are using a Cosigner, make damn sure that you can make your monthly payments every single month, because if you’re late just once, you’re gonna hurt their credit score. 

And trust me, they’re gonna be pretty pissed when they to go in to get a loan and they realize that you screwed their credit score. The bottom line here, though, is that if you do have bad credit, just stick with the cheap car so that you can actually make the payments and build your credit along the way. 

Or you could pay cash and save up like we used to back in the day. You’ll also want to have a down payment of about ten to 20% to get the best rates. And new cars will typically need about 20% down because of their fast depreciation. 

I know that 20% down is a lot, but you’ve got to understand that in order to get the best rates, you got to make a few sacrifices. If you have an existing car that you can sell, just take those profits and use those towards your down payment, and you’ll probably have enough. 

Now, if you don’t have very much down, you can at least see what the banks will give you, because it’s worth a try. The best car loan interest rates are typically about three to 5%, which will cost you about $30 to $50 a year per $1,000 that you borrow. 

So if you’re financing $20,000, then you’re going to be looking at about $600 to $1,000 a year in interest. But that’s on optimal credit and with a good down payment. And if you are given a rate that’s higher than 5%, then I would highly suggest working on your credit score or paying cash for the car so that you don’t go completely upside down on it being upside down in your car. 

It means that you owe more than the car is actually worth, and that is not a good thing. Cars naturally depreciate on their own, which totally sucks, but it is normal. But just keep in mind that you don’t want to be paying a ton of interest because you will go upside down in your car. 

Now, when you decide to finance a car, I would stick with just. Banks and credit unions because they always have the best rates. Just shop around online and I’m sure that you’ll find a bank really quick and easy. 

And please don’t go with your local bank just because you know who they are, because that doesn’t always mean that they’re going to have the best rates. Just always go with whomever has the best terms because that’s going to save you the most money on your car loan. 

Now, as an example, I live in Utah and I actually financed a car once through a company in Canada because they had the best rates and it was easy to just pay online. Dealers can also get you really good rates on car loans, but just make sure that they don’t get a cut of the interest rates. 

And if they’re not taking a cut, then go ahead and use them because it’s a lot easier and you probably only have to get your credit pulled once. And sometimes car manufacturers will even offer their own rates, which are typically really good, from about 2% to 0% on new car purchases. 

So if you’re looking into a new car and they offer 0% financing and there’s nothing funny about it, then that is a seriously good deal.

Thanks. And finally, let’s cover the length of the loan, which is the amount of time that you’re going to be making monthly payments until the loan is paid off. Just remember this, the longer the length of the loan, the smaller your car payments are going to be. 

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