For many people, buying a car is a necessity, not a luxury. However, no matter how much you need a car, you may not have the funds available to buy one with cash upfront. On average, a new vehicle costs somewhere between $48,000 and $50,000 - not the kind of money that most people have lying around. Products such as auto loans are there to help you acquire the car you need for personal or business use. You have come to the right place if you are wondering, “How do auto loans work?” Consumers National Bank offers the financing you need to get that car you have your eye on, with reasonable rates and repayment terms.
Understanding Auto Loans: First, What is an Auto Loan?
In very simple terms, an auto loan is financing that is provided specifically for the purchase of an automobile (car, SUV, truck, etc.). The lender usually makes the funds payable directly to the seller of the vehicle (either a dealership or a private individual if you’re buying from someone directly) to cover the price of the car and enable the buyer to drive it away immediately.
Usually, the buyer is responsible for adding some of their own money to satisfy the total purchase price, but at times a lender will offer 100% financing to cover the entire amount of the purchase. The buyer then repays the loan amount, plus interest, to the lender over a set repayment period. The borrower does not have to put up any additional collateral, because the car itself acts as security against the loan, but as mentioned earlier, there may also be a down-payment requirement if 100% financing is not an option.
Personal Loan vs. Auto Loan vs. Home Equity Loan: Making the Right Financial Choice
When you need to buy a car, there are actually a few options you may want to consider. If you are a homeowner and have built up equity in your home, you may qualify for a home equity loan and use these funds to purchase your new vehicle. Granted, you need to be a homeowner with equity available, but the advantage here is that your interest may be tax deductible since the collateral of the loan is your home, not the vehicle you’re purchasing (but you’ll need to check with your tax advisor to be certain).
Additionally, you could apply for a personal loan or an auto loan. When you take a personal loan, the money is paid to you, and you can then use the cash for whatever purpose you intend - in this case, to buy a car. With an auto loan, as previously explained, the money is usually paid to the seller of the vehicle. A personal loan comes with more risk for the lender, meaning that you may be required to put up an asset as collateral. However, with an auto loan, the car itself acts as collateral, meaning that if you fail to pay back the loan, the lender can simply repossess the vehicle in order to recoup part of the cost of the loan.
As a result of the higher risk, lenders may charge more interest on a personal loan than on an auto loan. For the purposes of buying a car, an auto loan is the safer and more affordable option for everyone concerned.
Navigating Auto Loans for Ohio Residents
For Ohio residents who are looking for an auto loan to purchase their next vehicle, Consumers National Bank offers easy applications and flexible terms to finance the purchase of new and used cars or trucks. You can either apply for your financing before you go car shopping or once you have found the car you want.
If you love the vehicle you’re driving now, but maybe don’t love the rate of your current loan, you may also be able to refinance, much like refinancing a mortgage to get a better rate and lower your payment. Not every lender offers this option, but it may be something worth asking!
When looking around for auto loans, pay special attention to the interest rates and repayment terms each potential lender offers you. Look for reasonable rates and loan repayment periods that suit your budget. It’s also good to know if there are any “pre-payment” penalties if you pay the loan off early. Personalized service is another important criterion. Choose the bank that offers you personal attention throughout the process, as well as affordable payments and a fast, uncomplicated approval process.
Managing Multiple Car Loans: How Many Car Loans Can You Have?
There is technically no limit to the number of car loans you can hold at one time. As long as you qualify, and can service those debts, you can apply for new loans if you wish. However, it is important to know how much debt you can manage at once. Don’t overextend yourself, and keep in mind that lenders will consider your income, credit score, and all your current debts and debt-to-income (DTI) ratio before granting you a loan. Having more than one auto loan at a time will thus affect your ability to qualify for new auto loans, as well as any other financial products you may wish to apply for at a later date, such as a mortgage or small business loan.
Consumers National Bank is based in Northeast Ohio. We have served individuals, households, and businesses throughout the region since the 1960s. If you need to finance a new or used vehicle, want more answers to the question, “How do auto loans work?” and would like to access our financing options, contact us today.
