home loan finance blog
How Do You Know If You Are Getting The Best Rate For Your Auto Loan? An auto loan is essential for most of us if we are to buy the car of our dreams. It is so often said that it has become a clich that buying a new car is the second largest purchase most of my will ever make. So it makes sense that your auto loan is likely to be the second largest loan you ever take out (second only to your mortgage).
Getting the wrong loan can cost you hundreds of dollars more than you need to pay. But how do you chose between the enormous range of loans available?
In the US and the UK it is part of consumer law (customer protection act in the UK and Truth in Lending Act in the US) that lenders must quote the Annual Percentage Rate (APR) for every loan they offer.
The APR is calculated by adding up all the costs of the loan such as:
- Administration fees
- Set up fees
- Interest charges
- Any required insurance protection of other linked transaction charges
- Security charges – any charges levied by the lender in order to gain security on the loan
- Credit brokerage charges
The calculation of the APR becomes pretty easy add up all of these charges over the life time of the loan, add on the loan amount and work out the effective percentage interest on the total amount over the period of the loan. By including all charges in the calculation of the APR the theory is that you should be able to use that one figure to compare any number of auto loans and see immediately which provides the best deal.
The introduction of APR has certainly stopped any number of unscrupulous lenders advertising low interest rates and then charging totally unwarranted and exorbitant extra charges.
For most people the APR provides a highly reliable way of comparing sources of finance. However, there are a few things missed out of the calculation of the APR that can make a small difference to the amount you pay. To be fair, most of these are only truly applicable to longer term home loans and mortgages. For auto finance the only additional cost to look out for is usually the charge levied for affecting the actual money transfer.
To completely compare loans you should use the APR as your first indicator. Once you have narrowed your options to 2 or 3 credit providers you should ask each lender to provide you with a written statement of the total amount to be repaid including any money transfer charges.
Once you are armed with this information it is surprising how many lenders suddenly decide that they will waive money transfer charges. To be fair, these are not normally large sums probably up to about 50 dollars – but every little helps in ensuring you get the best possible auto loan deal.