Auto Loan
What is an Auto Loan? How do you get an Auto Loan? Where is the best place to get an Auto Loan?
An Auto Loan consists of two involved parties a borrower and a lender. The lender gives money to the borrower in an exchange for compensation. Compensation for an auto loan is better known as the interest rate. The borrower usually pledges the auto as security for the loan. Thus, if the borrower stops making payments on the loan, the lender can take the auto back and try and recoup the amount giving to the borrower. The loan is created out of several parts a term, amortization, rate, frequency and collateral.
Term is usually the length of time an interest rate is guaranteed for.
Amortization is the total length of the loan.
Rate is the agreed upon compensation giving to the lender for the money.
Frequency is how often a payment will be made on the loan.
Collateral is the item being pledge as security for the loan.
Example: A fixed interest of 8%(rate) for 1 year(term) with an loan length of 5 years(amortization). After the first year the loan would have to be paid out or a new rate would be set for another year. Typical payments are made monthly or bi-weekly which would be the frequency. The collateral is the auto being purchased.
An Auto Loan is obtained through a credit application. A credit application is the process of determining the risk of default for the lender. Specifically the credit application will determine the amount of the loan and interest rate. The auto loan amount is determined through a cash flow analysis. More income available for payments mean the larger the loan can be. The interest rate is a reflection of the default risk. If you have a history of always making your payments(good credit) there is less of a chance of missing payments on this loan. Less risk equals a lower interest rate. If you have a history of always defaulting on your loans(bad credit) there is a higher chance that the lender will not receive their compensation on this loan. Greater the risk equals greater interest rates.
The best place to get an Auto Loan is to shop around. All things being equal different lenders offer different interest rates, which is just competitor competition. The best place to start looking for rates is through RateHunter.com.