Get the Right Car Loan in Salem - liveandloveoutloud.com

Get the Right Car Loan in Salem

“How can I get the right car loan in Salem?”

If you live in Salem, Oregon—or anywhere in the greater Portland or Salem metropolitan areas—and are looking to purchase a new car in the coming months, this may be a question you’ve found yourself asking.

Unless you’ve been very fortunate in life or may have won the lottery, it’s a safe bet that you, like most of us, don’t have the amount of cash burning a hole in your pocket that would allow you to outright purchase a new car. Cars can be expensive, and if you’re like most people, you’re going to need the aid of a car loan to afford your new ride.

When it comes down to it, if you want to get the right car loan in Salem (or anywhere else), you need to know what the “right car loan” looks like. At Central Willamette Credit Union, we can point you in the right direction.

What Does it Mean to Have the Right Car Loan?

Most people don’t sit around comparing types of loans with each other, so if you don’t know what the “right car loan” looks like, don’t fret. You’re not alone. It can be difficult for people who aren’t financial experts to tell the difference between a “good” loan and a “bad” loan.

When you’re looking to get the right car loan in Salem, or any other city, you should consider the following questions:

  • How expensive is the car?
  • How long do you have to repay the loan?
  • What type of loan is it?

How Expensive Is the Car?

This is easy to understand: the more expensive the car, the higher your monthly payments on it will be. It’s critical that the car you’re looking to buy is within your budget. Failing to make payments in a timely fashion can damage your credit score and can even result in your car being repossessed. Nobody wants that to happen.

As a good rule of thumb, it’s best to spend no more than 20 percent of your take-home income (that is, monthly income after taxes) on your car payments. That means, if your monthly income after taxes is $2,000, you should be spending no more than $400 in car payments every month. If you make $4,000, though, you could spend as much as $800 and be within budget.

Of course, this is just a guideline. Some people may have extra recurring expenses and find that even 20 percent of their monthly income is too much. Others may not have many other financial obligations and be able to safely spend more. However, even if you fall into this latter group, remember that renegotiating monthly payments can sometimes be difficult, so even if you can currently pay a little more on a monthly car loan, make sure that you will be able to meet that obligation through the loan’s life span.

If you’re a car lover with your eye on a specific ride that may be a little out of your monthly budget, consider saving up to put more money down. You only pay interest on the loan, so every dollar you spend upfront is one less dollar you’ll have to pay back.

How Long Do You Have to Repay the Loan?

The simple version is that the longer your loan term, the less you’ll owe on your car every month. This makes sense, right? If you take out a $12,000 loan and have 24 months to repay it, you’ll have to pay $500 a month. But if you have 36 months to repay it, you’ll only have to pay $333 a month. This is in a vacuum, of course. In the real world, loans come with interest, which is calculated monthly and compounds. This means longer loan terms result in you paying more overall.

Using a loan calculator like this one, we can see that at a 4 percent interest rate, our hypothetical $12,000 loan has a monthly payment of $521 and results in a final price of about $12,506. The 36-month loan, however, has a monthly payment of $354 but a final price of $12,754. It may be that an extra $250 in the long run is worth the lower monthly payments. Be sure to use an interest calculator to find what you’ll pay when all is said and done.

What Type of a Loan Is It?

There are many different types of car loans, and the details matter. It’s important to know what type of loan you’re getting.

  • Secured car loan.One of the most common types of car loans, this loan uses the vehicle itself as collateral for the debt. If you fail to make payments on time, the lending institution can repossess the vehicle since it’s on the vehicle’s title as lienholder.
  • Unsecured car loan.Unlike a secured loan, this has no guarantee and is based solely on trust that the loan recipient will pay the loan back. As such, these are riskier loans for a lender and typically have much higher interest rates.
  • Homeowners can borrow against the value of their homes instead of their cars. This is a comparatively rare loan, but it is an option and may actually help you get lower interest rates—after all, a house appreciates in value, while a car depreciates.
  • Direct financing. A lender can preapprove a customer’s loan for a vehicle purchase, typically from a specific dealership. This isn’t putting the cart before the horse: getting a loan negotiated in advance can help you find a better deal.
  • Simple interest. Unlike typical car loans, the interest on this loan is calculated payment-to-payment. This means that paying extra reduces not just your monthly payment, but the final interest amount you’ll have to pay. This rewards people who are able to pay loans off early.
  • Many more.From balloon loans to lease-to-buy, there are many other types of auto loans, and we recommend talking with a financial planner to see what options are right for you.

Trust Your Lender

One thing is for sure: no matter the type of car you want to drive or the type of loan you get, to get the right car loan in Salem or anywhere else, you’ll want to work with a trusted lending institution that you know will give you a fair, affordable car loan.