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Knowledge is power in automotive financing

Posted on Thursday, September 22, 2016 at 10:08:42 PM

New and used car purchases are booming across the United States, and there is no way to tell when these sales will begin to drop. A combination of general improvements to economic health in the nation alongside lower interest rates, greater credit accessibility and a massive number of institutions partaking in subprime lending has rifled the automotive financing and purchasing markets to new heights. 

Sometimes the sheer volume of diversity of options available by way of automotive financing programs can make it difficult to find the right option, though. This is why consumers should always keep themselves apprised of trends in the lending and car selling marketplaces. Finding the best possible program for specific financial capabilities and goals demands plenty of attention to detail. 

First, interest rates
Bankrate recently reported that average interest rates for several categories of loans dropped slightly between the second and third weeks of September. For 48-month and 60-month new car loans, the drop was about .01 percent. This dropped the former to 3.23 percent on average, and the latter to 3.29 percent. The average rate for a 48-month used car loan dropped .03 percent to 2.95 percent, the source noted, and the 60-month category in this class remained flat at 2.95 percent. 

Consumers must not allow lower monthly payments that accompany longer-term loans fool them, though, as the total paid on the debt will generally be higher than many would expect. Despite the fact that interest rates are indeed low, many institutions are pitching even longer than 60-month loans, which has led to unprecedented increases in auto loan debt and delinquencies. 

Next, terms
Marketplace.org reported that the average length of a loan for a new automobile has increased to 68 months after being closer to 60 months a few years back. These types of terms are not necessarily only common in subprime lending, either, as some mainstream programs are also allowing borrowers to accept long payback periods. The news provider explained that this is likely one of the main reasons why the outstanding debt recorded in the marketplace surpassed $1 trillion in the past few months - the highest such figure ever recorded in the United States. 

Make sure the length of the payback is as short as possible in terms of what you can afford, as this will generally keep the total amount paid on the loan lower. 

Finally, the lender
Certain financial institutions, especially alternative lenders and big banks, are simply not going to take an educational approach to their loan program practices and customer service, at least not as much as smaller, local lenders. Although a solid amount of research can help consumers to make better purchasing decisions, the finer points of automotive financing programs can be a bit more difficult to decipher. 

As such, always consider working with a local, small bank for automotive financing needs, as this can sometimes lead to more preferable outcomes.