What You May Not Know About How A Car Loan Works

Most people will get a car loan at least once throughout their life. It is the preferred means of purchasing a new or used vehicle as very few people have enough money saved up to pay for a car in cash. Usually, dealers will be the ones that offer different financing options and everything, including the car loan paperwork will be handled in the dealership.

What many may not be aware of is that dealerships make money not from selling cars but from the finance insurance premiums. They do post a higher sticker price to add their margin but they are willing to negotiate it down. When you get a car loan, they are willing to reduce their margin from selling the car when they know they will be collecting a premium by selling a finance insurance product.

Another aspect that consumers may not be aware of is that refinancing a car loan can be lucrative. You can save money by refinancing the loan at a lower interest rate. This can bring down your monthly payments by a considerable margin. To make the most out of this strategy, it is important to improve your credit score so that it is higher than what it was when you first got your car. Lenders offer lower interest on the car loan and refinancing products if you have a higher score.

Lastly, lack of understanding makes a lot of consumers make the wrong choices. A car loan may seem like a good deal at first but it will require a closer inspection if you want to be sure that you are not wasting money. The interest rate is not the same as APR. You may be tempted by an offer with a low-interest rate but the actual APR may be much higher. The APR includes fees and commissions that you have to pay and represents the real interest on your car loan.