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Before Signing
For That Car Loan Make Sure You Understand The Offer
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Although 90% of all auto loan offers are simple interest loans, there
are some lenders who are pushing loans that are not. A simple interest
loan means that interest is paid, or computed, only on the original
principal of the loan. You should never agree to an auto loan that is
not a simple interest loan.
The other thing that you want to insist on when securing an auto loan
is that the loan be given with no pre-payment penalties. Simply put,
this means that the lender will not penalize you, by charging a fee,
if you pay the loan off early either through refinancing or other means.
It is important to remember that it is always easiest, and refinancing
will save you the most money, when a simple interest auto loan with
no prepayment penalties is refinanced with another simple interest auto
loan at a lower interest rate.
Never Agree To a Pre-Computed Auto Loan
Some lenders offer auto loans that are not simple interest loans at
all; they are what are known as pre-computed loans. Sub prime lenders
will often target high risk borrowers with pre-computed auto loans,
and some used car dealers might push this type of auto loan financing.
If you sign on the line for this type of auto loan, you are legally
committed to paying back the full principal balance of the loan as well
as the total amount of all interest that would accrue over the life
of the loan.
If you agree to a pre-computed auto loan and then wish to pay it off
early, either through refinancing the loan or another means, the lender
will usually use an outdated and expensive formula, known as the rule
of 78s to calculate a rebate of finance charges. Through this rebate
you will pay a very hefty fee for paying the loan off early.
This type of loan allows the lender to apply more of the payment to
interest and less to the principal balance of the loan. A pre-computed
auto loan allows the lender to collect the majority of the interest
due during the first half of the loan repayment period.
Hold Out For the Best Offer
If the first lender that you speak to is not offering a simple interest
auto loan with no pre-payment penalties at a reasonable and competitive
interest rate, walk away with a smile. There are plenty of other lenders
eager to compete for your auto loan financing.
Record low interest rates, and the global lenders marketplace created
by the Internet have led to a competitive lending market. In other words,
it’s a buyer’s market! Check with your local bank, the financing that
the automobile dealer is offering, as well as online resources. Remember
to not only compare interest rates, but look for hidden fees and transfer
balances that my not be apparent at first glance. By thoroughly investigating
all of your options, you can’t help but get a loan that is perfect for
you!
About The Author:
Peter Dobler is a veteran in the IT business. His passion for experimenting
with new internet marketing strategies leads him to explore new niche
markets.
Read more about his experience with credit and mortgages; visit
Credit
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