While an upfront cash payment is perhaps the best way to go about financing a car, you may not have the money in hand to do so. A car loan can prove valuable in this instance. Car loans can be complicated with different components that requires careful attention. You may not readily understand the basics of auto finance, but you should do your best to learn about the process and what it means for you. Here are six considerations that you should keep in mind when choosing your next car loan.

  1. Possible Down Payment

Many car dealerships advertise “no money down” offers as a way to lure customers. Does this benefit you? Making a down payment when getting a car loan can help you save money in the long run, by decreasing the interest on the loan. You may also find that you end up paying more for the car than it’s actually worth after driving it off the lot if you don’t make a down payment. The huge factor here is the depreciation of the car as soon as it leaves the dealership. If your car is totaled in a crash, the insurance payout may not even cover the balance you have on the car loan.

  1. Calculating Costs Before Signing

There are several factors that determine your monthly car payment, including the total loan amount you need and the loan term. The APR also impacts the amount you pay monthly on the car loan. You can use a car loan emi calculator to help you get an estimate of your monthly installment and make the decision a little easier. Taking a moment to play with the numbers could end up saving you money.

  1. Term Length

Whether you are thinking about getting a car loan online, or from another source, loan terms should be given much thought. Current trends show that auto loans have been getting longer and riskier. While you may make lower monthly payments, you would likely pay a higher amount in interest. Avoid long-term auto loans for used cars, in particular, because used cars have a shorter lifespan. An auto loan outliving the car is not a good outcome.

  1. Interest rates

Lenders offer different interest rates, so shop around and compare rates prior to accepting a loan offer. Simple interest is generally applied to most car loans, where the interest charge is calculated only on the principal or the amount owed on the loan. The longer the loan term, the more you’ll pay in interest, but a simple interest does not compound, which generally saves a borrower money.

  1. Impact of Deferred Payments

Deferred payment may seem like a good deal, but it may not be the best option for you.  No payment for the primary six months doesn’t mean that you have “free” use of your new car for that period of time. Your loan terms may stipulate that you’ll be accruing interest for that six-month period. You may also be required to be current on the loan.

  1. Direct vs. Indirect Lenders

There are a number of options available when choosing who to borrow from, whether a direct or indirect lender. You can acquire a car loan directly from a banking institution, or indirectly through the car dealer. The best thing to do is compare offers from the different lenders to find the offer that is more suited to your individual needs. An arrangement that increase the cost of the loan is not appealing.

Shopping for a car loan may not be an exciting adventure, but you’ll be happy when you drive that car off the lot. Be smart when making a decision about a car loan because it is an investment. You’ll have to live with whatever choice you make, so be sure to make an informed decision when getting a car loan.