Thinking about applying for a car loan? Perhaps you’ve heard a thing or two about car loans that make the task seem difficult or overwhelming. Some things you’ve heard may be true, but it’s likely that most of what you’ve heard is a myth. Here are some common auto loan myths and the truths behind them.
1. You Can’t Get A Loan With Bad Credit Or No Credit
Myth. While good credit certainly helps, a person with no credit or bad credit can still get an auto loan. People who cannot get loans through traditional sources like banks, credit unions or car dealers can get them through lenders that specialize in loans to people with no credit or people with bad credit. However, these lenders might require more qualifications of the borrower than with traditional loans. Qualifications might include proof of a minimum monthly income, proof of residency or ability to obtain auto insurance. Borrowers with bad or no credit will also likely have less flexibility with the loan terms, like how much can be borrowed and how much the down payment must be.
For borrowers with no credit, some dealers may offer “first-time buyer” programs. These programs usually have more requirements than a traditional loan would. For example, the lender might require a co-signer, employment history, an age minimum, or proof of auto insurance. If you don’t have credit, check with dealers to see if they offer this kind of program and make sure you understand the requirements.
2. You Have To Get An Auto Loan For The Full Price Of The Car
Myth. You do not have to take out a loan equal to the value of your car price. If you have enough money to pay for some of the car, you can use that for your down payment. This can actually improve your situation, making it easier to get a car loan. It will also reduce the total amount you have to borrow and, as a result, the extra amount you would pay in interest.
3. It’s Harder To Get A Loan For Used Cars Than New Cars
Myth. While it is slightly more difficult to determine the actual price of a used car over a new car, when you take into account mileage, the car’s condition and depreciation, it’s still pretty easy. Websites like Kelley Blue Book and Edmunds make it easier to estimate the prices of used cars. Most car dealerships and banks have the resources to determine a car price, so whether it’s used or new should not make much difference when obtaining a loan.
4. Financing Through A Car Dealer Is Always More Expensive Than Getting Outside Financing
Myth. It’s not always more expensive than getting a loan from a third party. Some dealers may actually offer you a lower rate on a loan or you may be able to negotiate a lower rate. Before you finance a car, make sure you shop around to see what other lenders are offering. Figure out what the lowest rate available is and then ask a dealer what rate they can offer you. If they offer you a lower price, take it. If they don’t, here’s your chance to mention the lowest rate you found and see if they can match or beat that rate.
5. You Have To Pay The Same Interest Rate Until You Pay Off Your Loan
Myth. Many drivers who finance their car purchase take out a loan, pay the monthly payments, and never think about refinancing. Interest rates change, and so do circumstances. If interest rates go down from when you first took out your loan, you should think about refinancing, or paying off an existing loan with the proceeds of a new loan. If you don’t like the terms of your loan—you want to make smaller monthly payments or you want to extend the life of the loan—you can also refinance.
6. You Can Only Have One Car Loan At A Time
Myth. If you find that it would be beneficial to take out more than one loan to finance your car purchase, you can have multiple auto loans. As long as you have a good credit score, and sometimes even if you don’t, you can get multiple car loans at the same time. However, this means you’ll have more to remember and you should be careful to keep up with your payments to make sure you pay them on time. Missing payments or paying them late can hurt your credit score.
7. You Can Only Get An Auto Loan If You Own A House
Total myth. If this were true, you’d see a lot less cars on the road. In order to take out an auto loan, you don’t need to own a home or pay mortgage payments on a home. While having a mortgage, and making on-time payments, can help your credit history, it’s not a requirement for a car loan.
Now that you know what’s true and what’s not, you’re one step closer to getting a car loan. In order to get the best deal, you still have more work to do. Make sure you shop around to find the best rates on a car loan and make sure you understand the terms of each loan. It might sound like a lot of work, but it can save you some money in the long run.