There are over 1.2 trillion dollars in auto loans in the United States, according to LendingTree.com. The average monthly payment is approximately $550 for new vehicles and $400 for used ones. An automobile is technically an asset, but unfortunately, it’s an asset that most often loses value and will need to be replaced in time. Some careful thought before an automobile purchase can help make it fit best into your financial plan. One important thing to consider is efficiency (getting the best use of your money).
For most of us, the first thing we have to decide when buying an automobile is to pay cash or borrow. Given the cost these days, cash isn’t always an option. If it’s not, other alternatives include traditional auto loans, personal loans, or Home Equity Lines of Credit (HELOC). Talk with your financial professional to find the best (and most efficient) way to pay for your automobile.
If you do borrow to purchase (or need to refinance) your automobile, your goal should be to get the best rate possible. Rates on auto loans change daily, so it is essential to contact your financial professional to discuss loan rates. Rates depend on a myriad of factors such as your credit score, the vehicle type, how much you’re financing (loan to value), length of the loan, etc. Frequently the shorter the loan life, the lower the rate.
Auto loans are amortized, which means you pay a majority of the interest in the early years. This could mean that refinancing may cost more than it’s worth. Talk with your financial professional to ensure you receive the best rate possible (for you) or look at other options when considering purchasing a vehicle.