You’ve decided to buy a car, and now you’re ready to take on the next step: financing. But what exactly does that entail? Do you need a cosigner? Will your credit score matter? Does it make sense to lease instead of finance? You’ll have an answer to all these questions (and more) in this article. Here are four things you should know about financing a car:
The average APR for new and used borrowers is 4.4%
The average APR for a car loan can range from 3.7% to 5.2%. The average APR for new and used borrowers is 4.4%. As per Lantern by SoFi professionals, “The average interest rate on a car loan is generally higher for used vehicles than new vehicles.”
New borrowers have a higher average APR than used borrowers. The average APRs are 4.5% for new borrowers and 4.3% for used borrowers, which means that even though they’re both high, they’re still not equal—used car loans tend to be slightly lower than new car loans because the vehicle itself has depreciated over time and lost some of its value, making it easier to find financing options with more reasonable terms.
The average term of a car loan is 5 years
The average term of a car loan is 5 years. The average new car loan is 5.5 years and the average used car loan is 5.3 years, but leases are typically only 3 years long.
If you plan on keeping your vehicle for a long time, then it makes sense to choose the longest term possible because it will save you on interest costs over time. But if you’re not sure how long it will take before you want a new one or if you’re planning on upgrading frequently during that time period, then choosing a shorter term might be better for your budget (keep in mind that interest rates are higher for shorter terms).
The average monthly car loan payment is $530
The average car loan payment is $530 a month. While this number includes all types of vehicles, it’s important to keep in mind that the same car can have a different price tag based on its mileage and condition. So if you’re looking at two different cars with comparable features and options, they might not have the same monthly payments. The big question you should ask yourself before signing on the dotted line is: How much can you afford?
Car loans are flexible depending on which lender you choose—and certain lenders may offer lower rates than others. But if interest rates rise dramatically, your monthly payment could increase by hundreds or even thousands per year without warning.
65% of people who finance a car are upside-down in the first year
Upside-down is when you owe more on your car or a vehicle that’s been repossessed than it’s worth. It can be a serious problem for individuals who have bad credit and have to rely on car dealerships for financing. When you’re upside-down in your loan, the lender will take over any payments for you so that they are satisfied by paying off the vehicle at least enough to get back their money from the loan.
Hope this article has helped you understand car loans a little better. They can be confusing for many people, but it’s important to know how they work before going into one. In conclusion, financing a car should not be taken lightly because many factors go into this decision.