Want The Basics On Car Financing?

By: Dror Klar

When you go out to purchase a vehicle, one of the first things you have to do is determine your price range and find financing for it. Depending on your current credit and employment status, you may find it more or less difficult to find someone to finance the car for you.

Self-employed people in particular often have to deal with more paperwork than W-2 employees do, because their income tends to be irregular and difficult to prove without tax returns. So, if you are newly in business for yourself (as in, you became self-employed the past year or so), you will need to be able to provide the past two years tax returns in many cases.

Some blank check online lenders may not tell you exactly what paperwork you will need to send in until after you fax them the initial information they request, even if they go ahead and send you the blank check.

Another thing you want is a finance contract that is specifically simple interest. The idea of simple interest versus compound interest is, well, a simple one: simple interest contracts will prevent you from having to pay the full finance charge on a vehicle if you decide to pay the loan off early.

Compound interest contracts will require you to pay the complete amount of interest, whether you pay the loan off early or not, because the idea behind compound interest is that interest is earned on interest and applied to principle.

If you are talking about the interest on your savings or checking account, compound interest is a good thing because it means more money for you. If you are talking about a loan, simple interest means more money for you, because it means that the bank is not earning more interest money from you.

Be wary of online lenders. Many of the larger online companies treat their customers as faceless accounts, with next to no compassion when it comes to those customers who cannot repay their debt. Some will work with you when you get behind on your payments, but most will not give you an inch, so if you can find financing with a local bank or company where you can actually speak to a real loan officer instead of a customer service representative, this is the best route to use.

It is always better to deal in person with an actual person than it is to deal with a customer service representative that is probably at a call center in a foreign country.

While it is true that you may be able to get a lower interest rate (keyword: may), you will almost completely do away with the personal aspect of the loan and nix most of your chances at being able to work with your lender if something unexpected happens and you are unable to pay immediately.

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