The car-buying process is an exciting journey for many people, but it's also one filled with stress and big decisions. From deciding whether to buy a used or new car to understanding the ins and outs of auto loans, a lot goes into your job as a first-time car buyer.
Your car-buying decision can become much easier if you prepare in advance. To help you get started, we've compiled the ultimate guide to the auto loan and car buying process. Let's get started!
Advantages of Buying a New Car
Before getting started with your auto loans, you need to make one of the biggest decisions in buying a car: whether to go with a new or used vehicle. Here are some of the reasons you might choose a new vehicle.
Latest Features and Technology
One of the main advantages of buying a new car is that it'll have the newest and most advanced features and technology to make your driving experience more enjoyable, including multimedia technology and navigation features for an easier ride. Many newer cars also have more advanced safety features, making for a better and safer experience overall – and one you're sure to enjoy!
Lower Maintenance Costs
While the upfront cost is often a reason people buy used cars over new vehicles, you might not consider additional costs that will influence the amount you pay for your car, such as maintenance. A newer car will typically require less maintenance and incur lower maintenance costs than older, used vehicles that need more frequent maintenance, making it a viable option if you want to save long-term.
Greater Reliability
Most often, newer cars are much more reliable than used vehicles. Because they have the latest safety features and are brand new without any past damage, new cars will provide an incredibly trustworthy driving experience and eliminate concerns you might have about the safety of your vehicle.
Advantages of Buying a Used Car
Though there are plenty of reasons you might consider buying a new vehicle, used cars aren't without their benefits! Here are a few reasons why you might consider buying a used car over a new one.
Less Expensive
The most obvious reason why people choose used cars over new cars is their cost. You can save thousands of dollars on your vehicle if you decide to buy a used model rather than a new one, so if cost is a concern for you, a used car is right up your alley.
Slower Depreciation
You can get significant depreciation savings if you buy a used vehicle rather than a new one. Used cars depreciate slower than new cars because they've already gone through the initial high depreciation, meaning their current value decreases slower. If you choose to sell your used car in the future, you can sell it for a higher percentage of the purchase price than you could with a new vehicle.
Lower Insurance Costs
Another way that used cars save you money is by having generally lower insurance costs compared to new vehicles. Because the car is worth less initially than a new car, it costs you less to insure the vehicle, which can save a lot of money in the long run.
What Is Car Loan Refinancing?
One option if you currently have an auto loan is car loan refinancing. Refinancing replaces your current loan with a different loan that might have terms more suitable to your financial situation. Your new loan replaces and pays off your original loan.
You might consider car loan refinancing if you're in any of the following situations:
- Your credit score is higher than it was when you first purchased your vehicle
- You financed your car through a dealership, and other lenders offer more favorable terms and rates
- Your monthly payment is more than you can comfortably afford
- Your car has positive equity
Refinancing your car is relatively straightforward and quick, meaning you can get more favorable terms quickly. You can get car loan refinancing in the following steps:
- Check your current loan terms. Check for your current interest rate, monthly payments, outstanding balance, and the remainder of the loan duration to determine whether refinancing is a wise decision.
- Check your credit score. If your credit score has improved since your initial loan, you can get better refinancing terms.
- Gather necessary documents. No matter where you get your refinancing loan, you must provide crucial documentation. These documents include your driver's license, vehicle information, current loan details, credit report, and proof of income.
- Research different lenders. Compare offers from banks, online lenders, and credit unions. Consider lenders that specialize in auto loans.
- Apply for refinancing. After you've selected lenders, complete the loan application and provide the required documentation.
- Get loan offers. Once you've applied, you'll receive different loan offers from various lenders. Compare the new loan terms to your current loan to ensure that refinancing is the better option.
- Choose an offer and complete the refinancing process. Decide on a loan with the most favorable terms, paying attention to the interest rate, loan term, and monthly payment.
- Notify your current lender. Your current lender should be aware of your refinancing decision. They'll provide your payoff amount and the outstanding balance you need to settle before you can refinance.
Types of Auto Loans
There are several different types of auto loans you might consider when buying a car. Below is a breakdown of the different loan types and how they can benefit you as a first-time car buyer.
Secured vs. Unsecured Loans
There are two broader categories of auto loans to consider as a first-time car buyer: secured and unsecured loans. A secured auto loan is guaranteed by an underlying asset – in the case of car loans, this asset is the vehicle. When you fail to make repayments, the lender will have the right to repossess your car until the loan is paid off. These loans are less risky for lenders and usually have lower interest rates because of this additional security.
An unsecured loan isn't secured by an underlying asset, making it inherently riskier for lenders. Because of these risky terms, unsecured loans will have higher interest rates. You can get better terms if you have a high credit score and are deemed reliable to repay the loan.
New Car Loans
This loan is intended for purchasing a new vehicle and is available through banks, credit unions, dealerships, and online lenders specializing in auto loans. These loans are highly popular options for financing a new car and typically involve repaying the loan in fixed installments.
New car loans usually offer the best interest rates compared to other loan types, making them a popular choice for many car buyers. Because these cars have more value than used vehicles, you can expect better rates than you would when purchasing a used car. If you have good credit, you'll likely get even better rates – making this an excellent option if you're confident in your credit score.
Used Car Loans
While you might get better interest rates on loans for new cars, used car loans are still a valuable option for financing your vehicle. These loans are also available from banks, credit unions, dealerships, and certain online lenders and can often be used to purchase vehicles from private parties selling the car independently.
However, you might have more difficulty coming across this type of car loan compared to new car loans because some lenders will only finance newer vehicles that are under a certain age. Sometimes, individuals take out personal loans to finance their used car purchases if lenders are unwilling to finance a used purchase.
Auto Refinancing Loans
An auto refinance loan is what you'll need if you want to swap out your current auto loan for a new one. Many people choose these loans to find something that's more affordable or for a lower monthly payment.
While refinancing is an excellent option for many people looking for a more favorable option for their current vehicle, it can sometimes result in more interest if you don't take the time to compare the individual terms of each loan. However, if rates have fallen since you took out your initial loan or if you have a higher credit score than when you first took out your loan, refinancing can be a smart financial decision.
Lease Buyout Loans
Lease buyout loans can be used to finance the purchase of a vehicle once the lease ends. At the end of an auto lease, you might choose to return your car, or you can decide to invest in a lease buyout loan to make it yours permanently. This loan uses your vehicle as collateral, so if you fail to meet repayment terms, you might lose your car – but if you're prepared to make payments, the car is yours to keep once the final payment is made.
Find the Best Auto Loans with PFCU
Philadelphia Federal Credit Union has the loan options you need to fund your car, whether you're looking to refinance your vehicle or are a first-time car buyer. Join PFCU today to get started on the car loan process!