Most of us don’t want or need to be finance experts or scholarly economists, we just want to know the basics to get a good deal on our auto finance. That is the spirit of this article, to offer the basics of the subject in a practical way providing the essentials to help you save money and time on your auto finance package. This is not always an easy task as you quickly get bogged down in jargon when you deal with technical aspects of finance. We will try to explain in layman terms any word that might be considered technical.

What are the basics of auto finance?

The basics of auto finance are also  the basics of finance in general. The principle is simple, you need a person or company willing to lend money at a certain rate of interest and borrowers that are willing to pay for the privilege of borrowing money. This brings us to our first technical words, rate of interest.

What is a rate of interest?

Alas, very few people are willing to lend money out of charity. You can try with your mom, dad, brothers or friends but I don’t recommend trying it with banks and lending companies. Rate of interest is the figure that reflects how much profit the lender is demanding for lending his money. This rate is worked out as a percentage of the total capital borrowed. This percentage is paid generally every year, although other business with not so reputable methods might demand a monthly or even daily interest rate. Typically though a 10% rate of interest means that every year you pay 10% of the cash you borrow. So if you borrow $ 10,000 for a car the first year you will pay $ 1,000 plus the amount of capital you pay off. The second year you will pay 10% of the pending capital to be paid. If you paid $ 1,000 off, you will pay $ 900 and the corresponding capital and so on and so forth for every year until the debt is paid.

This is pretty simple term in auto finance. What is a little more complicated is the difference between the different types of auto finance.

Car dealer loan. These loans are offered by the car dealer himself. The loan is secured on the car you buy. This means that if you “forget” to pay your auto loan you will lose your car. In fact you don’t own the car until you have completely paid it. You cannot sell it until you completely finish paying for it. These loans often have cheaper rates of interest because the bank has something to take if you do not pay making it a lower risk loan.

Personal loans. These loans are different. For a more in detail analysis you can check our previous blog on auto finance contract types.

However the basics are simple to understand. These loans are not based on the car as a security. The bank lends the cash to the borrower. The borrower can then do what he or she wants with it. These loans provide more freedom and flexibility when buying but are generally more expensive in the interest rate department.

What does pre-arranged auto finance mean? Why should you consider it?  Let’s paint a picture to describe what happens when we buy a car with finance.

You decide one day that you need a car. Maybe it is a new car, or your first car. You haven’t got the cash to pay for it, especially the car you want to buy. But no worries the car dealer promises a low interest rate and no down payment. So you drive, or walk, down to the car dealer and check out your dream car. You talk technical details, what extras to get and after a few hours you are set to go. You have bargained a little for the price and you are happy with the deal you got. There is just one more detail, to arrange the finance.

At this moment the car dealer has you by the short and curlies, you pretty much have to accept their offer for finance or try and get it elsewhere at this late hour without any assurance that you will get it or that the car will still be there when you get your finance.

It is quite funny that we have got used to this way of buying. A good example of how capitalism has got  a hold of us if we don’t even blink about buying an expensive item we can’t afford unless we get it with a loan that will last for years. Just imagine what you would think if someone went to a supermarket, started bargaining on the price of a liter of milk and once the price was settled left the supermarket to try and find someone who will lend you money or alternatively try and get the supermarket to lend you the cash. You would consider it ludicrous. However that is what we do every time we purchase a car on credit without having arranged for our finance beforehand.

Wouldn’t it make more sense to arrange your cash before you went to the supermarket. Maybe asking your neighbor, father, friend for a small loan and then buying the milk. The same principle applies to car dealers. Just that in the case of car dealers it makes even more sense to arranges your cash before you go.

What is pre arranged finance?

Pre arranged finance involves going to a bank or finance company and arranging for a line of credit you can work with when you choose the car you want. This provides you with a maximum of cash you have available. This is a great way of buying a car. Why?

1) You tend to get a better interest rate and conditions. Arranging for a multi-thousand dollar loan as an afterthought is not the best recipe for a great deal. When you take it easy and look around for a good deal the chances of doing well with your finance increase.

2) You have a much stronger hand when bargaining for a better price on a car when you are effectively paying in cash.

Understanding what your auto finance contract involves and means is a must before you sign any paperwork. However it can be difficult sometimes to understand the jargon and concepts used. This article will try to impress the importance of comprehending the ins and outs of our auto finance contracts as well as pointing out some typical forms and types of contract.

Can you imagine signing a contract in a foreign language you don’t understand? Sadly that is what many of us do when we sign our auto finance contract. In Nicaragua and many other countries it is a criminal offence to try and “trick” a customer that can’t read into signing a contract they don’t understand. It is required that an “adviser” with no conflict of interest explain the consequences and implications of the contract or agreement.

In Spain any loan or similar contract can only be signed after a “Notario” has had a private meeting with the borrower and has explained all the implications of the loan. A notario is a lawyer that has taken extra training and carries tasks that in other countries would be carried out by a Justice to the Peace or a government officer.

This concept of assuring everyone understands what they are getting in before the sign the dotted line is very sound. We should all make sure we are never duped into agreeing to something we don’t fully comprehend.

Nevertheless in order to understand auto finance one must do a little homework and be willing to make an effort to apply the newly gained knowledge when shopping for a car loan or auto finance.

This article cannot dwell in all the detail and minutiae of auto finance, what we can do is provide a general overview of the different auto finance options and their pros and cons.

Personal loans. This type of auto finance contract is the most detached from the purchasing of a car. Banks will generally provide it without any proof of actually purchasing a car but on the credit score of the borrower. These loans are unsecured. This means that if the borrower stops paying the installments for the loan the bank has no collateral attached to the loan to liquidize. These loans are great for increasing your leverage on car purchase as it is as good as cash for the car seller that does not need to provide finance solutions.

Car loans. These loans are strongly linked to the actual car you are purchasing. The loan is not a straightforward loan of cash but a sort of lease from the lender that owns the car fully until the last payment is made. This means that if you stop paying the last month you will still not own the car. This loan is secured with the actual car and therefore has better interest rates. On the flip side you cannot sell the car without authorization from the lender.

These are just two types, albeit the main ones, of the great variety that are out there to be bought. Take some time to understand them and save money in the bargain.

Arranging for credit when purchasing a car has become a must for most of us that cannot afford to pay for a car outright and must purchase a loan in order to afford the vehicle. How do you arrange for your finance? How should you buy a car loan or car finance? This article will help you see the main points behind auto finance and what you can do to get a better deal.

Napoleon Bonaparte is said to have said once to his steward when he was in a terrible rush: “Dress me slowly, I am in a rush”. The principle Napoleon was said to have made is that doing things in a rush and without care is likely to cost you time and be a job badly done in the bargain.

This principle applies to auto finance. Buying a car is exciting, sweating the details of auto finance is not. Many of us don’t think for a second about which car loan or alternative finance we choose. The truth is that our carelessness can cost us hundreds if not thousands of dollars. People don’t generally know that car dealers often make more money on the finance deal than with the actual sale of the car. In fact car dealers are known to offer great deals on the vehicle and then proceed to crucify you on the loan. It makes good sense to plan things a little, especially considering that buying a car is probably going to be the second largest purchase you are likely to make.

How should you go about arranging your auto finance so that you enjoy your car without any post purchase regrets?

Have you ever bought an item, an expensive item with your credit card on impulse. Then realized you can’t afford to buy it outright and will have to pay it on credit. You then work out the real price of the purchase when paying 12% interest or more on your credit card interest. Don’t you feel like it was a mistake, that you were taken for a ride. This is what you can do to avoid this situation.

Go online and survey the market for loans on the level you are planning to purchase. Once you have asked for quotes to at least five major banks and finance companies choose the best deal available. Don’t forget to take paying conditions into account, like pre payment of installments. Once you have the pre-arranged auto finance arranged you can go to the car dealer and try and get a better deal from them.

Car dealers will try to give you a better deal on your auto finance. If that is the case make sure the agreement is in writing and that the contract you sign states that the finance agreement is final. Some car dealers will “forget” to include this in the paperwork and inform you a few days or even weeks later that the finance has fallen through and that you need to arrange alternative finance.

Learning is a word that has different connotations depending on who you are speaking to and what you are speaking about. Some find learning a pleasure and can’t find enough books, courses and websites to read and enjoy. Others, find learning the most boring and unappetizing activity, only to be engaged when completely necessary and no other alternative is possible. Learning about auto finance often falls into the category of boring as hell subjects that people run away from as soon as it is mentioned. Granted, learning about car finance is hardly a fascinated subject. However, having said that there are few subjects that can save you so much money with so little work.

In fact learning the basics of auto finance will only take you minutes as opposed to hours. Reading and analyzing auto finance offers and  contracts will take longer, but that is the case whether you take the time to actually understand it or not.

We are not saying you should become an Economist either. That would take years and you would still need training to understand the particulars of current auto finance deals.

So what do you need to understand the basics of auto finance? As we mentioned, not much. You will need to read a few articles and get a feel of the market forces that mold the industry. Then it is just a matter of shopping around and getting a feel of what is on sale. Remember you want to learn how to get a good deal not write a thesis on the subject. Just like you don’t need overly technical research to learn how to buy good beans at a good price you don’t need to be a rocket scientist to get a good deal onyour car insurance.

The main market forces that shape the auto finance industry are:

1) Offer and demand. The appetite for loans can shape the profit margin of auto finance companies substantially

2) The interest rate. The government or a Government instituted authority sets the interest rate for banks and lending companies in the country. They then set their own rate based on the national rate. The government will change this interest rate in an attempt to control the economy.

3) Competition. In a healthy marketplace with good competition, prices will be defined by the strength of a company and it’s marketing policies.

These forces help us to shape our auto finance shopping techniques. Here are three tips you should always keep in mind.

1) Do not, NEVER, shop out your budget. Set yourself a reasonable limit for your monthly and overall payments and stick to it.

2) Shop around for the best interest rates and make yourself as good as a customer as you can. If your credit rating is good Banks will be encouraged to reduce their interest rates and attract your custom.

3) Beware of the collateral you use on your car loan. Whatever you place as collateral, your car, your house or your wife could be lost if you default on your payments.

Recent surveys have shown that most Americans, and this probably extends to other developed countries don’t understand the basics of credit and personal finance matters. A recent Truecredit.com survey showed that over 80% of borrowers don’t know the current credit card rate while 90% don’t know what is actually included in their credit report.

This survey highlights the need to explain the basics of auto financing in order to be prepared to make sound choices when choosing a car and an auto finance option.

Here are the basics of auto finance from start to end:

1) Get started! By getting started we don’t mean get buying, that will happen later, don’t worry. Before you even leave your house you must do your homework and decide what vehicle you need and how much you can afford. A wise adage says you should never go shopping when you are hungry you will spend more than you need. Something similar could be said of buying a car without preparation, not a good idea. There are many choices you must make. What kind of car, diesel or petrol, maybe a green car could save you money both in the gas tank and on the interest rate. You should also decide what your budget is and stick with it. Doing this before you leave home will protect you from overspending.

2) Shop until you drop! Now you have your basics facts and guidelines you are fit to go shopping. Do not even think of making a choice until you have seen enough options to give you a feel of the market. You can do this in two main ways, you can go to car dealers and physically see all the cars you have time check or you can go online and see hundreds of cars and get just as many quotes in the comfort of your home. Once you have chosen the type and model you like you can always go to the nearest car dealer and test drive it. The key word here is COMPARE, COMPARE and COMPARE a little more.

3) B&B, Bargain and buy. Once you know what you want it is time to get the best price you  can for it. This will take time and energy, but remember car dealers have significant profit margins they can play with, use this knowledge. If you followed step 2 you also know the variety in prices from even identical models. Use this information and demand the best price there is to have.

4) Pre arrange finance. This is actually step 2b. You are well advised to have finance arranged with a good finance company or bank before you talk finance with your car dealer. In the unlikely case that your car dealer can give you a better price, all the better, just make sure you sign an agreement that sets the finance in stone and not conditional to a third party approving the loan.

You have the basics, use them and happy auto shopping!

We all know we live in an economically unstable world that has gone from economic boom to recession in the last year. However people still need transport to get to work, school and to go shopping. Not only that, people still like expensive cars. As good patriots we all want to do our bit to lift up the economy, if doing so means buying our favorite Audi, Toyota or Ford, well so be it.

Of course, this consumerist fever is harder to uphold when the whole  credit system has fallen into crisis. Banks need to lend to make business and create profits. Governments need people to buy for the economy to have a chance to recover. Facilitating finance is the only way it is going to happen. However, after the credit crisis, new and more stringent standards are in place to reduce the cropping up of bad debts. This means that most people cannot qualify for a loan as their credit rating is far from perfect.

A way out of this vicious circle is the use of Secured Auto Finance loans.

What are Secured Auto Finance Loans?

Secured Auto Finance loans are car loans that are secured by a collateral, generally a house. This means that if for any reason you default in your car loan you will have to use the collateral to cover the loan. This could mean that a borrower with secured auto finance loan will lose his house if he does not pay the auto finance loan. That is the risk of taking on a secured auto finance loan on your home, if you don’t pay you take the risk of losing your home.

Secured auto finance loans can be secured on other forms of collateral besides a house although a home with equity is by far the most popular option.

The benefit of getting a secured loan over a personal loan without security is two-fold.

1) You get better interest rates. Secured auto finance loans interest rates are considerably lower than general loans. This is because the risk banks take is smaller and they require a smaller profit margin to cover the losses of people that default on their loans. This is an important concept we do well to understand. The more reliable a client you are and the more collateral you can provide to the bank the cheaper the interest rates and loan startup fees.

2) It is easier to get your loan accepted. The approval process for people who need a personal loan goes through many stages where the income, reliability, credit rating of the potential customer is put through the microscope in order to assess if he is a safe bet as borrower. With secured loans it is simpler. The bank is covered for most of the loan if the borrower decides not to pay or cannot pay. Therefore the background check and credit rating is much less stringent. This allows more people with less than perfect credit rating get their loan approved.

Choosing which kind of auto finance is best for your new car is a hard question to answer. There are many factors and circumstances that affect the wisdom of choosing a certain finance method and the suitability of another option. In fact you are the best qualified to specify what is more important for you in an auto finance. There are many types of auto financing, all with one benefit or disadvantage to deal with. We always suggest our readers to consult a finance professional that can give you advice based on your specific circumstances.  However it is sometimes difficult to know what y0u want when you don´t know the options you have at your disposal. So here is our suggestion. Read this and other articles on the auto finance options at your disposal and then write down what is most important for you in auto financing. Then consult and independent auto finance adviser and hear what he has to say.

So what are your options and what are the main characteristics of these options?

These are only a few of a large list of possible finance deals. However because of their format and characteristics I feel they are descriptive of the auto finance sector as a whole.

0% Auto Finance from Car dealers.

Car dealers will sometimes offer 0% auto finance in an effort to attract customers. 0% finance is great news so if you qualify it might be a good deal for you. These loans are not for everyone, to qualify is rather difficult. Only borrowers with excellent credit rating can apply. These loans also tend to exclude other discounts we are used to receive from car dealer. It is important that you work out your savings against the potential rebates and discounts you would receive if you did  not get the 0% finance.

Car Loans.

Car loans are a pretty wide term but in the context of auto finance they refer to auto financing that uses the car itself as collateral for the loan. This means that if the borrower defaults on the payments the bank or finance company will own the car. In fact the borrower does not own the car until he has paid the last installment of the auto finance loan. Interest rates for car loans are lower than personal loans as they have some collateral. On the flip side, you cannot sell a vehicle with a car loan on it without the permission of the loan managers.

Personal Loans.

These are loans Banks and finance companies give you based solely on your word and credit rating. The interest rates tend to be higher because of the higher risk involved. On the positive side you own the car outright and can sell it whenever you want. Personal loans are great for pre arranged finance when buying a car. It is useful because it gives you the necessary leverage to barter for a cheaper price when you have a pre-arranged personal loan up your sleeve.

It is amazing how aloof most people are with the financing of their car. They will fight to death if they feel a restaurant is cheating them out of fifty dollars on the bill but they bend over and take it with a smile when it comes to auto financing companies offering APR rates that would make your eyes water. This article will try to offer some helpful tips and explain how and where to find value for money on your auto finance. But let’s start from the beginning with two questions you will need to know the answer in order to make the most of this advice.

What is APR? APR is a useful indicator of the interest you pay on a loan. It stands for Annual Percentage Rate. What this rate does is combine the fees, expenses and interest rate on a loan and give you a yearly interest rate on the capital you borrow. It does get a little complicated when you look deeper into what you are actually paying. The devil is as they say in the details. But overall the Annual Percentage Rate will give you the real cost of the loan bells and whistles aside. This rate will help you compare auto finance loans giving you a useful tool to decide which is best for you.

What is credit rating? You have probably heard about good and bad credit. What does it mean? It is rating that is worked out from your past loans and debts. Put simply if you have paid your loans and debts in the past you will have a high credit rating and all banks will be begging you to be their customers. If you have not paid your bills then your credit rating will be low and you will be kindly asked by most banks to find auto finance elsewhere.

With those definitions under our belt we can continue with our tips and advice for finding value for money in auto financing. It is not complicated, in fact it is deceivingly simple. In the current economy we are experiencing a somewhat ironic situation. Apparently the credit crisis and bad loans taken on in the past decade has catapulted us into a depression. However the only way out of this recession is to get consumers to spend more. Banks are cautious on giving loans to bad customers but they need to lend to survive. This has created a paradise for borrowers with good credit and a steady income.

The Government has helped Banks and Finance Companies to drop interest rates to never before seen lows. Of course your credit rating must be good. So here is what you must do:

A) If your credit rating is bad, fix it. Check our many articles on www.talkinghomeloans.com to find how to improve your rating.

B) Re-finance your auto loan with current interest rates. In order to make sure you are actually making a saving. Ask your bank for your current APR and confirm it with the quotes of five finance companies. You will be amazed on how much you can save.

Let’s  begin by debunking some myths. Having bad credit is a big deal, it is not “No Problem”. You should try your very best to keep your credit in top condition, not only because it will save you a lot of money but because it is the right thing to do. However bad things happen and it is possible that any of us could end up in bad credit. Losing your job, a turn in the economy, an increase in the interest rates or any number of unfortunate situations could cause us to spoil our credit rating. So what can you do to find auto finance even if you have bad credit.

Well let’s start from the beginning. What does bad credit rating mean anyway? If we understand that we will be more proficient at improving our rating and doing the best we can with the rating we have.

Many people honestly have a victim complex and feel that the finance industry is out for them. “They won’t give me finance the nasty banks”. Let’s debunk another myth. Banks like to turn down your loan. WRONG. Banks love to approve loans, it is just that they don’t like people that do not pay their bills, which might be you, or look like you, if you have a bad credit rating.

So what is credit rating? Credit rating is a system of qualifying people according to their borrowing history. In auto finance a whole lot of other factors come in to play also, like your driving history and unpaid fines. However the main issue is how good you have been in the past about paying debts. If you have paid every debt on time you will be considered a top borrower no matter how many times you have taken on a loan. In fact the more loans you have taken on successfully the better borrower you will be in the eyes of finance companies.

But what if like we said you have had some bad times and your credit is not good? Well the first step is to improve your credit rating, more on that issue in other articles in this site. The second step is to look for alternative finance options.

If your credit rating is very bad it is unlikely you are going to get great deals, but that doesn’t mean you don’t have options:

A) Subprime loans. These are loans that finance companies provide for high risk borrowers. No surprises here, you will pay higher interest for the privilege of your loan. You are considered a risky customer so you won’t be given too many breaks. These lenders are those that advertise, Good credit, Bad credit, No credit; or “No credit, no problem” and similar gems of advertising literature.

B) Hard money lenders. These lenders use different “techniques” than traditional lending companies. The interest will be high in order to cover the losses they suffer on customers that don’t pay. A high collateral is often required.

So if you really need the loan, get ready to pay top buck or improve your credit rating, it really is that simple.