A large number of the auto loan offers available are calculated on simple interest; but there are a small number of lenders who are providing loans that are not simple interest. A simple interest loan is that in which only the principal amount of the loan is taken into considering while computing the interest. In order to save money, you should not opt for an auto loan that does not compute according to simple interest.
One more thing to emphasize on is that there should be no prepayment penalties with the automobile loan. Prepayment penalties are levied when you pay off the loan earlier than the stipulated period. Your auto loan should provide you the freedom of paying off the loan whenever you want without charging any prepayment fees.
If you are stuck with a high interest rate automobile loan, then it always makes better sense to refinance. Refinancing means the taking of another loan with a lower interest rate in order to pay off the higher interest rat loan. You then continue paying for the lower loan, which saves a lot of money.
Nowadays some lenders are offering loans known as pre-computed loans. These loans are not simple interest loans. Lenders who do not have much leading in the market may target high risk borrowers and then push off a pre-computed auto loan to them. This type of loan is also used by used car dealers. You should be wary of buying any pre-computed automobile loans. Despite all that, if you agree to a pre-computed loan, you are obliged to pay back the entire principal balance of the loan in addition to the total amount of interest that would accrue over the entire lifetime of the loan.
There is another huge pitfall. In case you wish to pay off the pre-computed loan early, then there are prepayment charges applicable. But these prepayment charges are calculated according to an obsolete formula known as the rule of 78s which bloat the charges to a very hefty amount. With this loan, you allow the lender to apply much more of your monthly payment amount to interest and less to the principal. The lender generally collects the majority of the interest during the first half of the loan repayment period, and the principal remain virtually untouched. Thus you should never accept to borrow a pre-computed auto loan.
Therefore you must wait even when you have decided for an automobile loan. Hold out for a lender who is offering a simple interest auto loan with no prepayment penalties. You will certainly get one out of the several financing agencies available today.
There is cutthroat competition in the loan industry today due to record low interest rates and the internet that has created a marketplace for global lenders. Thus the automobile loans’ industry has become a buyer’s market. Only be cautious to check for hidden fees and transfer balances that may not be apparent at the first glance. Investigate all the options available to you; only then must you go and get the auto loan that’s tailor-made for you.
How to Deal With Auto Loans
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