If you’re not the type of person who would always ask for directions, you need to be more careful when taking out an auto loan. Why? Asking questions is necessary when applying for an auto loan because it leads you to the right decision and keeps you away from unscrupulous lenders in the market. You can’t be an auto loan expert in your first, second or even third time. Here are some of the important questions you need to ask the lender before signing a contract.
1. What’s the APR?
The APR, or the annual percentage rate, is different from the monthly interest rate that is usually advertised. The APR is the total cost of the loan expressed as an annual rate. So if you want to know which offer is more expensive or cheaper, look at the APRs.
The law requires all lenders to disclose the APRs of their loan products to their borrowers. So insist on knowing the APR of a particular auto loan before filing an application.
2. Does a prepayment penalty apply?
The prepayment penalty is a fee that a lender charges a borrower when the latter decides to pay off the loan ahead of the schedule. The fee could be huge and may surpass the savings you’re anticipating to keep by paying the loan off sooner. You would want to avoid this as much as possible.
Before signing on the dotted line, talk about this particular penalty with the lender. Make sure you won’t get charged with any fee when you want to make extra payments or complete the payments sooner. Experts do not recommend signing up for an auto loan with hefty and restrictive penalties such as a prepayment penalty.
3. What documentation do I need to present?
Although most auto lenders list down the eligibility requirements in their websites, you should still ask them over the phone about these requirements. Moreover, specific requirements vary from lender to lender. So it’s still better to check with the lenders themselves by calling them.
4. How much should I put down?
The ideal down payment is 20%. But some lenders require more or less. That’s why you need to ask them. But in any case, aim to put down more than 20% as this can lower your interest rate and monthly payments. A bigger down payment also convinces lenders about your willingness to pay off the loan which could move them to approve your application.
5. What other fees are included?
You really need to ask this to avoid overpaying for the loan. Abusive lenders charge extra fees that aren’t really necessary. They do this to make more profit. But you wouldn’t know about these fees unless you ask about them. In addition, be careful of some legal fees that could be overpriced. Before talking with a lender, be familiar first with the fees financing institutions are allowed and not allowed to charge here in St. Louis.
If there’s anything in the contract that you don’t understand or think is inconsistent, don’t hesitate to raise your concern to the lender. Do not sign the contract until you’re done reading it carefully and clearing things up with the lender.