When taking a car loan, either from an economic institution or a private party, there are certain things that you should be aware of, in order not to get tricked by the loaner, or to get the best deal possible. These can be the guidelines that you should follow when “loan shopping”. Basic things that the interested party should be looking for are following: the interest rate given, specified amount of time in which the loan should be returned and the amount of money that can be borrowed.
- The interest rate
The interest rate of a loan is perhaps the most important thing about any loan, as it is basically the cost that the financial institution or a private party declares for providing the service of lending the money to the potential borrower. No one will give you the money for free, and the interest is the incentive for the loaner to loan the money. The interest is applied to the principle, the amount of money which is being borrowed, and then (and after the taxes are added, if applicable), the complete amount is divided into monthly installments. There is no fixed price for borrowing the money, and interest is measured in percentage of the money that is being borrowed. There are laws which regulate the maximum interest on different types of loans, and one should be well informed of them, because there are many frauds that look to make money in illegal ways by the use of interest. From time to time, financial institutions can offer lower interest rates, in order to draw customers, and make the institution more competitive on the financial market. So, it is very important to do an extensive research as to where you can find the lowest interest rates. The best place to start would be your own bank, as it can offer you better rates, because you are their regular customer, but, it would be wise to check various credit unions, which can also offer you lower rates, if you are a member or any other financial institution.
- The period of time for the repayment of money
Next important thing to be examining is the period of time that is specified for the return of the money, as it is a major factor as to how much money you will have to pay monthly, and how will it affect your budget. Depending on the amount of money you want to borrow, the specified period of time varies, and again different institutions have different offers, but everything between 12 months and 10 years is possible. Again, loan shopping is advised, as you should definitely see all the possible offers and judge them. But, here the most important question lies with you. The question is how much you want burden your monthly budget. If you make, for example, $3000 per month, it is not advisable to take a $10,000 loan for 12 months. But $10,000 loan for 5 years will be much more acceptable.
- The amount of money that can be borrowed
Last of the most important things to look out for is the amount of money that can be borrowed. Financial institutions will try to offer vehicle loans which may be sometimes too burdening for your budget. Most of the banks have limits on the amount of money they can lend you, if they know how much you are making per month, like if you have your paycheck delivered to your bank account. Or, they will ask for your credit file to see your current credit commitments. They can determine the maximum amount of money they can lend you, and you can then calculate how much money you will have to pay per month. The amount can also be different with different interest rates, and different periods of time.
On the Internet, with online loaners, you can find loan calculators which will enable you to calculate how big will be your monthly installments for various interest rates, periods of time and amounts of money you can borrow. They are perhaps the best helpers when loan shopping for the best possible offer. Also, some have the option to search all the offers in the database, and to show you the best offers, with already calculated monthly installments, based on the amount of money you want to borrow.