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Before You Sign Your Auto Loan

Congrats on deciding to buy or trade up!

This could be the start of some exciting changes—more mobility, mobility in more style, perhaps the convenience and comforts of technology from the current century. But one change that’s likely is the additional financial responsibility. Payments that aren’t included in your current budget will soon be due every month for the next 4–6 years or longer. And because vehicle prices continue to rise, those monthly payments are at an all-time average high.

So, before you sign on the dotted line—and even before getting preapproved—be sure to ask a prospective lender lots of questions. Educating yourself will go a long way toward having peace of mind throughout the life of your new loan.

“Just like modern cars, financing can be very complex,” says Jerry Leach, Team Lead of SELCO’s Loan Center. “An auto loan is a commitment you should enter into knowing all your options, with a clear understanding of what lies ahead, and alongside a financial partner that understands and meets your needs.”

Be sure to ask a prospective lender lots of questions.

Here are a few questions to help get you on the road to driving that new or used car off the lot.

How much will I ultimately pay?

This depends on a number of factors, including:

  • If a trade or down payment is involved.
  • The Annual Percentage Rate (APR) on your prospective loan.
  • Whether you plan to attach any extra coverage (e.g., GAP Advantage or Extended Vehicle Warranty).

Once the numbers are crunched, you’ll have a rough estimate of your total loan amount.

“We can provide estimates prior to signing,” Leach says, “and we always provide a full disclosure of what could be paid in principal and interest over the life of the loan. However, most people usually pay off or trade in their vehicle prior to completing the loan term. This means they will likely pay less overall.”

Will my monthly payments be fixed?

If you follow the terms of your loan agreement, then, yes, your minimum payments will remain the same. Late or skipped payments can extend the life of your loan, of course, and paying more than the minimum can shorten the term. But there are also a few situations in which monthly payments would be altered:

  • CPI (Creditor-placed insurance) is added to the loan. This can happen when borrowers don’t have full coverage on their vehicles. Creditor-placed insurance can raise monthly payments substantially, but it’s easily avoidable by keeping your auto insurance current and with the correct coverages. (You can get a free insurance rate quote here.)
  • Borrowers request to re-amortize their loan to get a lower payment. This is common when borrowers want to make a large principal payment (such as with a tax refund).
  • A late payment fee may be assessed after the grace period has passed. However, some credit unions offer skip payment, a cost-effective alternative if you need a little extra time.

Is refinancing a good idea?

Only if the process ultimately saves you money. Say your credit isn’t stellar and you’re stuck with a loan that has a whopping 20% interest rate. Refinancing at a lower rate makes great financial sense. But be wary of factors that could end up costing you more. Ask yourself:

  • Does your new lender require additional insurance that would drive up your payments?
  • Are you “upside down” on your loan and need to provide cash upfront to refinance?
  • What’s the title-transfer fee? Rates vary from state to state. For refinancing loans of $10,000 or more from other institutions, SELCO covers up to $93 of the title-transfer fee, which happens to be the standard fee in Oregon.

“It all really comes down to what the borrower is most concerned with,” Leach says. “Is it getting a lower payment? Getting a better rate? My goal is always to accomplish both.”

As you can see, there’s a lot to think about before taking out a vehicle loan. By doing a little homework and asking your lender a few extra questions, you’ll be better equipped to drive off in style and (financial) comfort. If you have any questions about financing, call 800-445-4483, option 1, to reach the Loan Center. A representative will be happy to help.

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