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Getting
the first car loan
When
you thought about life after graduation, you probably fantasized about dumping
that bucket that got you through school and getting into a newer, flashier and
more reliable auto befitting a college graduate. But unless you handled your college
finances better than most, you'll need a good auto loan to make this fantasy a
reality at a price you can afford.
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| Understanding car loans | |
| | But what separates
a good loan from a bad one? The critical components are down payment, monthly
payment, interest rate and term.
Down payment/monthly
payment
The down payment and monthly payment, the numbers that most
car buyers pay attention to, are only part of the picture. It's important that
you arrange a monthly payment and down payment that fit your budget and not become
a "payment buyer." Payment buyers get caught taking a dealer's monthly
payment figure instead of setting their budget before entering the showroom. Try
playing around with Bankrate's car loan
calculator to figure out how much you can afford to spend. Interest
rate
With interest rates, you want the lowest APR (annual percentage
rate) possible. This rate varies depending on where you get the loan and your
credit history. While it's true that used cars offer a lot of advantages over
new cars, including lower depreciation and more car for your money, expect to
pay a higher interest rate when financing one. Term
As for the loan term, most experts recommend going no longer than 48 months. You
may be tempted to go longer -- it will allow you to buy a more expensive car with
the same monthly payment -- but even if you get a relatively low interest rate,
you'll probably end up paying more in interest than you should. And
you'll run the risk, if the car is wrecked or stolen, of owing more on the loan
than the insurance company is willing to give you for the car. Some dealers and
insurers offer gap
insurance, designed to protect you from this, but a good rule of thumb is,
if you need gap insurance, you're probably drawing the loan out too long. "If
you can't do 48 months at the best interest rate, move to a cheaper car,"
says Anthony Giorgianni, an associate finance editor with Consumer Reports. | 
