There are over 260 million automobiles parked in the driveways and driving on the motorways throughout the US, it is difficult to imagine life without our car.
In addition to the massive surge in the sheer number of vehicles, the average cost to purchase a car has also dramatically increased.
Over a century ago a Model T would set you back $625.00 that’s $14,480.00 when adjusted for inflation, today the average car costs $33,560.00.
The increase in car ownership is mainly due to the advent of the car loan, like a mortgage loan used to purchase a property, the car loan is a line of credit extended by a financier for the purpose of purchasing a vehicle.
There are several different types of car loans from your standard secured loan to your commercial hire purchase and finance lease.
This makes shopping for car loans at times overwhelming and the world of finance can be full of confusing terminology, with car loans being no exception.
With this in mind here at bestautoloans.com we’ve produced this short list of the most common terms, so you are in the know when it comes to your car loan.
APR
The interest rate on a car loan is the cost you pay each year to borrow money expressed as a percentage, the rate does not include fees charged for the loan.
APR (Annual Percentage Rate) is the cost you pay each year to borrow money, which includes fees expressed as a percentage. The APR is a broader measure of the costs of borrowing money as it reflects not only the interest rate but also fees incurred from the loan. The higher the APR, the more you’ll pay over the lifetime of the loan.
A car loan’s interest and APR are two of the most important measures which determine the price you pay for borrowing money.
Hard Inquiry
Hard inquiries, more commonly known as ‘hard pulls’ occur when a financial institution, such as a lender, checks your credit history upon making a lending decision.
Such inquiries take place when you apply for a car loan and your consent is normally required. Too many hard enquiries may lower your credit score by a few points, or it may have a negligible effect on your scores.
The inquiry will also become part of your credit report so any other lenders who perform a hard pull will see this inquiry. However, if you are ‘rate shopping’ for car loans all inquiries within a 45-day period are considered one inquiry.
Soft Inquiry
A soft credit inquiry or soft pull is a credit check when you are not necessarily applying for a new line of credit, such inquiries do not affect your credit score.
An example of a soft credit inquiry is car loan pre-approval, such a process occurs when a lender evaluates your creditworthiness and determines whether you are likely to qualify for a car loan. If it is decided you are an eligible candidate, rates and terms for your car loan may be outlined.
However, pre-approval is not a guarantee of full approval and a hard inquiry may also be required to take place by the lender, although a pre-approval check is not a bad idea before formally applying.
Credit Score
When purchasing that dream vehicle, the last thing on your mind is your credit score, however it is a very important element in securing that all-important car loan.
A credit score is a statistical number that evaluates a consumer’s creditworthiness and is based on credit history, it can be described as your ability to pay back a loan. Higher credit scores indicate a higher probability that you will pay back your loan and make your payments on time, indicating to lenders you are a low risk compared to others with a lower credit score.
When it comes to your car loan those with a good credit score typically qualify for lower interest rates and 0% financing.
Before choosing that car loan agreement, and signing on the dotted line, it’s vital to know what you’re agreeing to and exactly what the terms and conditions are.