By taking out a personal loan to finance a vehicle, you can buy a car with additional amenities, which may not be affordable if you tried to buy it outright. Today’s best personal loans for car financing come with competitive interest rates, which allow you to make fixed monthly payments that are both reasonable and economical.
Whether you want to buy a pre-owned vehicle or a new car, you will find that a Car loan secured online is the easiest and fastest way to fund a vehicle conveniently and fast.
What Is an Auto Loan?
A loan for vehicles can be represented as a secured (collateralized) or unsecured (non-collateralized) loan product. If you get a secured Car loan, you can use your car as collateral to receive the proceeds. If you wish to obtain a personal Car loan, you can use the funding when buying a car from an individual or when you do not want to fund the car through dealer financing.
If you get an unsecured Car loan, you will pay a higher rate of interest than when the loan is collateralized or secured. If you opt for a secured Car loan, the financing rate will be higher than the rate for securing a secured Car loan. That is because the lender can take away the car if the borrower defaults, or cannot meet their payment.
To obtain an auto loan, you can place a down payment to reduce the monthly payment amount. This can be done if you are trading in a car for a newer model. You will use the trade-in price you receive toward the new loan. If you do not have a car to trade, you can place so much money down yourself to decrease the installment payments for the loan.
How to Get Started?
To apply for this type of loan, you will need to take the following steps.
- Check Your Credit Score. When you apply for any type of personal loan online, you need to review your credit score first through the 3 credit bureaus. Because your personal loan for a Car is primarily based on your credit score, knowing the score will help you determine what APR you will be charged.
- Select Your Loan Type. Some companies specialize in vehicle loan funding, so it is better to go through them if you want the best rates for this loan type.
- Get Prequalified for Car Personal Loan Financing. When you choose several lending providers you like, you will need to get prequalified for your loan next. Doing so will give you the repayment details and terms for your Car loan funding. If you agree to shorter loan terms, you can also get a lower fixed APR.
- Compare the Lenders. After you have had a chance to get prequalified through different funders, you can review their loan terms and APRs, and see which one fits best with your lending or personal finance requirements, Go with a lender that offers the lowest APR and features the lowest fees over the term of the loan.
- Supply the Necessary Info and Documents. When you choose a lender, you will need to provide the required loan documents and information for a car loan. In this case, you need to supply the following details and documents:
- Personal Identification (Social security card, passport, or driver’s license)
- Proof of earnings or income (W-2s, paystubs, or filed tax returns)
- Employer information (Name of company, manager’s name, and phone number and address)
- Proof of residence (utility bill with your name and address or a lease agreement)
- Apply for the Loan and Start Making Payments. After you apply for your car finance personal loan and start making payments, you might add some extra money to your payment each month to repay the loan faster. Doing so will make the loan repayment smoother and easier.
Car Loan Financing – What You Need to Know
you should be aware of the following terms:
- Annual Percentage Rate (APR) – The rate of interest charged on a Car loan, expressed at an annual rate.
- Application Fee – The amount a lender charges for processing a Car loan application and the related documents. These fees are usually non-refundable and may or may not be included in processing a personal Car loan.
- Collateral – An asset or property secured against a loan. The car you buy with a Car loan is the collateral used for the loan if it is secured.
- Debt-to-Available Credit Ratio – When considering you for a Car loan, a lender may look at your debt-to-available credit details. This represents the money you owe compared to the credit available through credit lines and credit cards. Therefore, the debt-to-available credit ratio shows how much available credit you are using. The higher this percentage, the riskier you appear to a lender.
- Debt-to-Income Ratio – The percent of your monthly pre-tax income that is being used to pay off debts, such as auto loans, credit cards, and student loans. Lenders assess 2 key ratios. The first ratio is a front-end ratio or the percent of monthly pretax earnings spent on your house payment. The second percent is a back-end ratio or the other debts that are factored into the house payments.
- Late fee – A fee charged to customers who take out a loan who pay a payment late or pay less than the required monthly amount.
- Late Payment – A delinquent payment or a failure to pay on an auto loan before the agreed due date. A late payment can hurt your credit score for as long as 7 years.
- Loan Lender – The financial institution that provides a car loan for paying for a new or pre-owned auto or truck.
- Net Income – Your income after taxes has been deducted. It is also called your take-home pay. This is the amount considered by a lender when assessing your ability to repay a loan amount.
- Prepayment Penalty – A fee charged by a lender when a borrower pays off a loan before its scheduled term. Usually, prepayment penalties are not applied by standard lenders. If you are taking out a subprime car loan, you need to read the loan terms carefully, as this fee may be applied.
- Principal – The amount of money owed on a loan, excluding the charged interest or APR.
- Risk Score – Another name for a credit score.
- Subprime Borrower – Some people who request funding for this loan may be subprime borrowers. A subprime borrower usually has a poor credit score because of late payments or collection accounts. Lenders evaluate and grade subprime borrowers on the degree of past collection problems – A to D, or lower. Subprime borrowers can qualify for a car loan but at a higher interest rate.
- Utilization Ratio – A ratio that shows a lender how much available credit you are using.
- Unsecured Loan – Most personal loans online are not collateralized. However, car loans may be secured or collateralized with the car the borrower plans to purchase. If you take out a personal loan for a vehicle that is unsecured, the lender assesses your ability to pay, based primarily on your credit score.