Auto Financing 101 for Houma, LA, Drivers

What Is Auto Financing, and How Does It Work?

If you’re preparing to purchase a car, you’ll have plenty of options here at Barker Buick GMC. Whether you’re interested in a practical SUV like the Buick Encore GX, a family hauler like the GMC Yukon, or a hearty truck like the GMC Sierra 1500, we know you’ll be happy with the selection on our lot in Houma, LA. To make sure you’re in the right position to buy the model you want, you’ll need to secure an auto loan, and we can help with that too. Let’s take a look at the ins-and-outs of the financing process and see exactly how to get an auto loan in Houma, Louisiana.

To finance the purchase of a vehicle, you borrow money from a lender and then pay that money back over an established period. The lender could be a credit union, bank, or another source, and the monthly payments you make will go toward the original amount borrowed plus interest until the auto loan is entirely paid off.

Interest Rate: Interest is the price you pay for borrowing money from the lender. It’s calculated as a percentage of the loan credit.

Loan Term: This is the amount of time you have to pay off the loan. Generally, loan terms are set for 36, 48, or 60 months.

Conditions: Lenders may add conditions to the auto loan, and these might include rules about early payoff or what penalties could be incurred by late payments.

Types of Auto Financing

Different kinds of financing plans are suited to specific situations, so take a look at these common plans to see which is right for your needs:

• Secured auto loans: This loan is backed by the vehicle you buy. That means that if you default on your loan payments, the lender can repossess the vehicle. Secured loans often require a down payment, and they typically come with lower interest rates than unsecured auto loans.
• Unsecured auto loans: Unsecured loans aren’t backed by any kind of collateral like the vehicle purchased, so your eligibility is dependent on your credit. The interest rate will likely be higher than a secured auto loan, but it’s important to note that this loan type can be a helpful path to ownership if you don’t have the kind of credit history you’d prefer or if you’re concerned about paying a down payment all at once.
• First-time car buyer loans: If you’re buying a car for the first time, this loan type offers a lower interest rate as well as other benefits like waived application fees and a lower down payment.
• Auto refinance: Some drivers find it helpful to take out a new loan to pay off their original auto loan. If your credit score has improved since you first secured your loan, or if you want a lower interest rate, auto refinancing might work for you.
• Leasing: Leasing a car differs from buying because ownership remains with the dealer. You essentially rent the car for a predetermined time period (often 24 to 36 months), and when the lease is over, you must return the vehicle to the dealership. You may then lease or buy another vehicle, or even purchase the model you leased. Instead of paying down an auto loan, the monthly lease payments cover value depreciation, which can entail lower costs than loan payments would for the same model.

Factors that Affect Auto Loan Rates

Your auto loan rate is determined by a variety of factors:

Credit Score: If you have a high credit score, you might be able to enjoy a lower interest rate. Keep in mind that the score alone might not be the only credit factor considered, as potential lenders might also want to know your debt-to-income ratio.

Loan Term: Short loan terms can offer lower interest rates and higher monthly payments, since there’s not as much time to pay off the amount of money you borrowed. With lower interest rates added to the actual loan amount, you end up paying less from start to finish than you would with a longer term and higher interest rates.

Down Payment: The size of the down payment can influence your interest rate, and a large down payment could help you keep your interest rate low since you would have a lower amount to pay back. You could also trade in your existing vehicle to use its value toward the down payment. Take advantage of our Value Your Trade feature to see what your old car can do for you.

Vehicle Age: Newer models are considered at lower risk for breaking down than used cars, so they typically come with lower interest rates. New vehicles may also offer manufacturer and dealership promotional rates.

How To Compare Auto Loan Rates

Many car shoppers don’t immediately go with the first car they see. It’s normal to shop around and weigh your options when looking for the right model, and the same approach can help you find the right auto loan rate for your situation. If you compare auto loan rates, you could potentially save money, so it’s worthwhile to get quotes from several lenders, then compare the terms and interest rates to see which works well for you. Pay close attention to each annual percentage rate (APR) for the interest rate and other costs.

How To Determine Your Monthly Budget

Preparing a budget in advance will help you set realistic expectations for the kind of vehicle you can buy and what funds it will leave you to work with. Common knowledge suggests that you shouldn’t spend any more than 15 of your monthly income on transportation expenses, including car insurance and auto loan payments. You should also factor in the cost of gas as well. To see what your insurance costs could be, all you have to do is request a quote from your preferred insurance company.

How to Get Pre-Approved for an Auto Loan

When you start your car-shopping journey by getting pre-approved, you can take your next steps knowing that you’ll be able to get the financing you need. To get pre-approved for an auto loan, you’ll need to provide some basic information to lenders. Info like your employment, income, and credit details will give them an idea about how much they can lend you as well as the kind of interest rate they can establish for your auto loan. To get started, feel free to apply for financing online with our safe and secure form.

Count on Us at Barker Buick GMC

Whenever you enter the market for your next vehicle, you can rely on our automotive experts to work with you through every step of the process, from finding the model you want to finance it with a loan you can feel great about. Whether you need an auto loan for a new car or financing for a used model, we’re standing by to help. Call or come see us at Barker Buick GMC to get started. We hope to see you soon at 6444 W Main Street, Houma, Louisiana 70360.