If you do a thorough survey of the car market, you will find that a brand new car costs in between $33,000. Therefore, it is no big surprise that most of the individuals who are planning to buy a car opt for car loans for a minimum tenure of 6 to 10 years. But, what about bad credit car loans?
To answer that question, you need to understand how the interest rates on car loans work.
Three Big Facts about Car Loans:
- The interest rates on auto loans change on a daily basis and generally vary quite a lot. Before you enter an auto showroom, don’t forget to check out the latest rate of interest applicable. It is advisable that that you apply for a pre-approval from a credit union or bank before you go ahead and take the plunge. You can always ask an auto agent. He will either give you a good price on the car or offer a better financing deal.
- Many of us are not aware that auto loans comprise of simple interest and not compound interest. This is a better choice as you need to pay a flat rate on the amount borrowed. Don’t get duped by anyone who says otherwise.
- If the down payment is less then you will have to pay more in the monthly installments of the first few initial few months – this is more so because the value of a car depreciates with the passage of time. So at the end you end up paying more than what you had bargained for. And if you do not calculate this in the beginning, you end up getting stuck with bad credit auto loans.
Crunching the Numbers
Let us take an example to understand better:
The price of the car is $33,560. The down payment is 10%. The amount financed will be $30,204.
If you opt for a loan that charges you 4% for the next 5 years, you will end up paying $556.25 per month. At the end of 5 years, you will end up paying $33,375 as part of your monthly payments. If you add this amount to the amount with which you have purchased the car, the cost will amount to $36,731.
Now imagine the tenure is 8 years instead of 5 years, the monthly payment will decrease to $368.16. But the total amount paid will be high, amounting to $35,343.36. Now add this amount to the original amount and you have actually paid to $38,699.36.
The bottom line
Choosing a car loan is always a tricky affair. If you are on low cash, then a low monthly payment feature is always an attractive option but in the long run, you end up paying more. However, if you wish to avoid getting stuck with bad credit loans, you will have to opt for a higher monthly payment so that you end up paying the best price for the car.
The post Bad Credit Car Loans | Be aware of bad credit loans – Useful Tips appeared first on Wiziken.