Buying a car is a necessary but costly investment. The value of a new car can depreciate by 20 to 30 percent in the span of one year. This often makes people question the wisdom of buying a new one, considering that the investment depreciates drastically in a couple of years time. However, buying an old one is not an easy decision. The buyer has to ensure that it is not riddled with problems that would cost a greater deal of money to fix. Otherwise, instead of saving money, the purchase may end up costing the buyer more than its worth. Once the buyer has made up his mind to buy it, financing the purchase is the next piece of the puzzle that has to fall into place.
Loans
Some people may be able to finance the purchase of the car without borrowing money. However, if used car loans can be availed at a low rate of interest, the cost of repaying the interest on the borrowed amount may be less than that earned on the money invested elsewhere. In this situation, borrowing is a sensible option even for people who can afford to finance the purchase.
Generally, most people are unable to make outright payments for its purchase. The buyers make a small down payment and avail of a loan from banks or credit unions. The term of the loan is between 36 and 48 months. The banks charge interest on the amount borrowed.
Interest Rates
These are affected by the credit score of the borrower. As of 14th July 2009, a borrower with a good credit score can expect to borrow for 36 months at 7.75 percent. A 48-month loan is currently carrying an interest rate of 7.89 percent. Since these are amortizing loans, the borrower is expected to pay both principal and interest on the loan, on a monthly basis. Initially, the amount of interest payments will exceed the principal repayments. In time reducing principal balance, at the beginning of each month, will result in lower interest payments. Thankfully, the borrower is not expected to calculate the monthly payments. Online calculators can be used to figure the auto loan amortizing schedule.
Inability to make regular mortgage payments will result in the car being repossessed. Its repossession will have a negative impact on a person’s credit score, and may make it very difficult for the borrower to obtain loans in future. Although bad credit car loans are available, the interest rates on them are usually very high and may result in compounding the problems of the borrower. Hence, one should determine the amount of payments one would be able to make on a monthly basis. This figure should be multiplied by the term of the loan. Adding the amount of down payment to the calculated value will give one a rough estimate of the price of the car that one can afford. The rate of interest at which the borrower can obtain the loan can be found out by approaching local lending institutions. Shopping around for the best rates is not an easy task. Armed with the interest rate and the estimated price of the car, the buyer is now in a position to perform a few calculations with the aid of an online calculator. Entering the estimated price of the car and the best rate of interest will give an approximate figure of the expected monthly payments. In case this figure is different from what the borrower has in mind, he can adjust the price of the car and calculate the new monthly payments, keeping interest constant. Eventually, the borrower will be able to arrive at the desired monthly payment.
Once the buyer has arranged for the necessary finances, he can approach the seller, pick out the car, test drive it, and have a mechanic perform the necessary checks to ensure that it is in reasonably good condition.
