People who are looking to buy a new car is
often looking for financing at the same time and that makes sense with interest
rates at low levels it is often a better deal to finance for a low-interest
rate and invest the money than to pay for the car cash even if the means for
cash payment is present.
And for people who cannot pay for the car cash, it still makes sense to finance now when the interest rates are so low. The following article describes what to think about before financing a car, some vocabulary regarding lending and how to go about doing the actual financing.
When it comes to borrowing money the single most important metric that lenders use to determine the interest rate to charge is the credit score. A credit score for a person ranges between 300 to 850, and the higher the score the better access the individual will have to low interest rate for all kinds of loans.
Parts of the car financing
For people who are buying a Ford a good way to
finance is through Ford Finance they have been around for a long
time and they only do Ford Financing and that is a good thing because they have
standard contracts and know the special need of the typical Ford customer.
A car loan contract typically has a down payment section where the amount that is required upfront is specified. This amount can be as low as zero in some circumstances important to understand is that the more down payment that the car loan specifies the less interest will be charged during the duration of the loan since the interest is only charged on the remaining balance of the loan after the down payment is made.
The car loan contract will also have specified
the length of the loan this can range between 24 to 60 months the longer the
loan duration the more total interest will be charged over the life of the
loan, the length of the loan and the total interest charged has a direct
correlation with each other.
Here the customer should think about how much they can pay each month and also think about the alternatives to paying on the car loan. If the customer wants to minimize the amount of interest charged, they should opt for the shortest loan duration that they can manage based on their monthly income.
Since interest rates are extremely low, especially for someone who has a high credit score, it might actually be a good idea to take a longer duration loan and invest the difference in payments between the long and short duration loan into a CD or similar investment vehicle.
Some customers can get car loan interest for one percent per year or less and some certificates of deposits are yielding over two percent per year which means that it is a better economic decision to pay the minimum on the loan and invest the remaining money in a certificate of deposits.
Another important thing to consider is the trade-in value of the current car. Sometimes the dealership gives customers a very good deal in order to close the sale for the new car it is, however, a good idea for most people to check the internet for a couple of sites that estimates used car value in order to know what general amount the car buyer is aiming for with the trade-in.
Keeping this in mind and the finance experience can be a relaxed and fun event.