Best Car Loan Options Guide

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If you don’t buy real estate, your car is probably the biggest purchase you will make.  With an investment of this size, it’s critical to nail down the right car loan options from the beginning.  Consider these the next time you buy.

Automatic payments.  The biggest or second-biggest monthly payment shouldn’t be forgotten.  Establishing automatic payment from checking or savings is one less worry and makes for predictable budgeting.  You can establish the day of the month you want payments to occur, and some lenders will even give you a slight interest rate reduction when you make this arrangement.

Online payments.  If you don’t opt for automatic payments, at least verify you can make online payments for extra peace of mind and more certainty of when the funds will be applied.  This is also convenient for putting extra money toward the loan, like when you receive your income tax refund.  Make sure there are no pre-payment penalties, however.

Credit insurance.  This potentially important option covers car payments under circumstances like job loss or debilitating injury.  It’s not mandatory, and it’s not even for every situation.  Weigh the benefit against the extra cost.  Also confirm whether you already have similar coverage through existing short- and/or long-term disability coverage.  Typically this is through employer benefits or on a standalone policy.

Gap coverage.  If your car is deemed a total loss after an incident or theft, most auto insurance policies pay the actual cash value of the car.  If that falls short of the loan balance, this coverage comes in to cover the gap between the two.  Just be aware of the maximum amount payable and any other restrictions to compare against the cost.

Practical term, reasonable interest.  When establishing a car loan, you will be presented with different terms to consider.  For example, a shorter length of 24 months means a higher monthly payment but a better interest rate than a 48-month loan.  Understand the total amount financed, and opt for a term you can afford but still be able to pay off well before you move on to your next car.

A little help here.  If your credit isn’t as shiny as a new car, you still have options.  Adding cash to offset a little of the loan amount is a positive.  So is having a creditworthy cosigner on the loan with you.  Your interest rate and monthly payments could be considerably lower as you re-establish credit.

Home equity loan.  One of the best car loan options to consider isn’t a car loan at all.  If you own your home, instead of tying up the car as collateral, you can use the equity in your property to fund your purchase.  The interest rate will probably be better or at least competitive, plus there are possible tax advantages.  Just proceed with caution, as your house will be on the hook.

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