For most people, an auto loan is the first step to getting a car of their own. Taking out an auto loan is a big financial commitment. It’s important to do your homework and plan carefully before committing to any loan terms.

Not sure where to begin?  Argent Credit Union’s Loan Calculator is a great starting point, allowing you to see what your monthly payments might look like.

Keep reading as we look at what these terms are and how they affect your ability to pay off your loan over time. We’ll also cover some ways to reduce your interest payments and budget for your auto payments. Reading to get rolling? Read on to learn more.

Understanding Your Loan Terms

You’ll need to look at a lot of figures when you apply for an auto loan. Here are some of the most important ones, what they mean, and how to use them with our calculator. 

1. Loan Amount

Your loan amount is the total amount you choose to borrow and will need to repay with interest. If you know the price of the car you want, enter it into the calculator. If you’re still deciding, estimate the amount you plan to spend. Whether you use the car price or loan amount, this step will help you visualize your payment options.

2. Down Payment

Your down payment is the cash you have on hand to spend on your car. The more you put down, the less you will need to borrow. The bigger your down payment, the lower your monthly payments will be and the less money you will spend on interest as you repay your loan. 

For new cars, a down payment of 20% is generally recommended. For used cars, most lenders look for about 10-20% down.

3. Trade-In Value

If you have an existing vehicle to trade in, the dealer may offer you an amount to trade it in that can be applied to your total loan amount in the same way as your down payment. If you have a rough idea of your car’s trade-in value, you can include it in the down payment entry.

4. Loan Term

Your loan term is the total period over which you’ll repay your loan. For cars, loan terms generally range from 12 to 84 months. Longer terms mean lower monthly payments but higher interest over time. You’ll need to look at both your monthly payment and how much you want to spend on your car when deciding on a loan term.

Remember also that unlike homes, cars, especially new ones, lose their value very quickly. New cars typically lose about 20-30% of their value in the first year, and about 60% of their value over the first five years. This depreciation is important to consider so you know how much to expect when you sell your car, and so you can avoid owing more on your loan than your car is worth.

5. Interest Rate

The interest rate you are offered affects how much you will pay above your loan amount over the life of your loan. It’s based on both your loan amount and terms, as well as your credit score and history. By entering an estimated interest rate or annual percentage rate into the calculator, you can estimate your monthly payment.

It’s important to understand how important your credit score is to your loan rate and even the type of loan you can qualify for. The following table groups credit scores into five widely used risk categories and includes the average interest rate offered for new and used cars in each case.

Source: Experian’s State of the Automotive Finance Market Report: Q1 2024

As you can see, your credit score has a major impact on your auto loan’s interest rate and can save you thousands of dollars over the life of your loan. It’s worth taking the time to review your credit report, before approaching lenders. Be sure to correct any errors, pay off any overdue amounts, and do the best you can to reduce high-interest debt on credit cards as well as student and personal loans.

Key Steps in Applying for an Auto Loan

It helps to know what to expect. Here are the typical steps involved in applying for an auto loan and buying a car. 

1. Gather Documents and Review Your Credit Report

• Collect essential paperwork. You’ll need to provide proof of income and employment, identification, and copies of your recent financial statements.
• Review your credit report. Check for mistakes or outstanding payments. Make sure there are no errors that could affect your credit score.

2. Get Pre-Approved

• Shop for lenders. Compare offers from different lenders, including banks, credit unions, online lenders, and specialized auto lenders.
• Submit your application. Apply for pre-approval to get an idea of the loan amount, interest rate, and terms for which you might qualify. Pre-approval helps you plan your budget and allows you to approach dealerships with financing already in place.

3. Finding a Car

• Research and compare vehicles. Look for cars that fit your budget and meet your needs. Consider factors like reliability, fuel efficiency, and insurance costs.
• Get a vehicle history report. If you’re buying a used car, be sure to review its history for any accidents or major repairs.

4. Getting Your Loan Approved

• Finalize your loan application. Once you’ve chosen a car, submit your loan application to your lender for pre-approval.
• Review the loan terms. Carefully review the loan terms, including the interest rate, loan length, and monthly payment. Make sure they are similar to what you were pre-approved for.
• Provide additional documentation. Your lender may require extra documents or verification before approving the loan.

5. Purchasing Your Vehicle

• Negotiate the purchase price. Determine the final price of the car with the dealer. Use your pre-approved loan as leverage to get the best deal.
• Sign the loan agreement. Once you know the final price, sign the loan agreement with your lender. Make sure you understand all the terms and conditions.
• Complete the purchase. Pay any down payment or fees due, finalize the transaction with the dealership, and drive away in your new or new-to-you vehicle.

Budgeting for Your Auto Loan

Ready to take the plunge? First, do your financial homework. Here are some key things to keep in mind as you prepare to apply for an auto loan.

Create a Budget

Before committing to a loan, make sure it fits your budget. Make sure your budget plans for additional car-related expenses like fuel, insurance, and maintenance. Remember to plan for these extra expenses and add significant padding for unforeseen expenses. 

Plan for Additional Costs

Remember to consider the total cost of your loan when looking at your budget. Check with your lender about fees or charges due during the application process. Use your loan calculator to estimate how much your car will cost you and for how long by including the interest charged. 

Reducing Interest Payments

If your income increases or you come into some additional money, it might be worth seeing if you can pay off your car early. This can save you a lot of money on interest payments and give you a car you own outright. Be sure before signing, however, that your auto loan does not include prepayment penalties to offset the lost insurance.

Alternatively, you could use extra funds to pay more on your car payments each month, effectively shortening the life of your loan and reducing the amount of interest you pay. Again, be sure that your loan does not levy additional charges if you do this.

Argent Credit Union: Let’s Get You on the Road

Taking out an auto loan is a big step, involving a financial commitment for years to come. It comes with a big reward, however, a car of your own to take you places in life. Plan a road trip, unlock new work opportunities, and run errands when you want to. It’s a whole new life with a car.

At Argent Credit Union we know how owning a car can transform your day-to-day life. That’s why we work hard to make auto financing affordable and easy. Start with our loan calculator, then speak to us about how we can make our low loan rates work for you. 

Our auto loans feature:

• Easy online application process
• Up to 120% financing for qualified borrowers
• No payment for 90 days
• Competitively priced GAP protection
• Extended warranties
• Longer terms (up to 84 monthly payments)

Contact us today, or click below to learn more about Argent Credit Union’s auto loan options.

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