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Car Loan FAQs

The majority of consumers aren’t fortunate enough to pay cash for a new or used vehicle. This means most people are reliant upon securing an auto loan. According to a 2007 Lending Tree survey, over 70 percent of automobile purchases are financed rather than immediately paid for.

Auto financing is complicated and confusing for many consumers. Learn the answers to some of the most common questions about car loans.

Car Loan FAQs
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What Are the Qualifications for Car Loans?

Qualifying for a car loan is based on a combination of factors. The applicant’s credit history is a large determinant, as is the ability to budget for a monthly payment. The loan-to-value ratio (the loan amount versus the vehicle value) and the age of the vehicle also make an impact.


What Can One Do if Denied for a Car Loan?

Find out if the loan can be made with conditions. A larger down payment may help; so may choosing a lower-priced vehicle. If the loan cannot be made under any conditions, you can try asking a family member to co-sign for you.


What Is a Good Interest Rate for a Car Loan?

Interest rates fluctuate constantly; what is considered a good interest rate will fluctuate depending on the prime rate and economic conditions. Generally speaking, auto loan rates in the 5 to 6 percent range are considered good.

Sometimes auto manufacturers offer special financing rates in lieu of a rebate or other discount. These rates are often well below the prime rate, sometimes 0 percent.


How Long Is the Term of a Car Loan?

Common car loan terms range from 36 to 72 months. 60 months is usually the norm; 72 month financing offers a lower payment, but it will result in higher overall interest costs. Classic car or specialty vehicle financing terms may extend up to 120 months.


How Is an Auto Loan Guaranteed?

When you finance a car through a bank or finance company, a lien is placed on the title. The lien protects the lender in case the loan goes into default. Contract terms vary, but usually when a customer becomes 90 days past due a bank will begin the repossession process.

The lender sells the vehicle to pay off as much of the remaining loan balance as he can.


What Is the Difference Between Direct and Indirect Financing?

In direct financing, the consumer deals directly with a bank or a finance company. Indirect financing is completed through a third party, usually an auto dealer. Indirect financing may result in the third party marking up the interest rate or charging points.


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