Someone Mind Explaining How Auto Loans Work?

Submitted by RebelliousCash t3_10qc8nz in personalfinance

So I’m new to all of this & slowly learning as I shop for a used vehicle. Now the part I want to understand more is auto loans. Is it better to take out a loans for the entirety of the vehicle price or take out a loan for the price of a car AFTER taking down payment takes effect?

Like for example if a car is 15k & im willing to put 5k as a down payment. Would it be better to take out the loan for the remaining amount or just take out a loan for the entire 15k?

I just wonna be more knowledgeable & not look like a complete goofball when it’s time for me check out a vehicle. I’ve been looking on Carmax & the pre approval tool is listing an apr that’s pretty high, but PedFed pre approval is listing me also pretty high but lower than what Carmax is.

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ahj3939 t1_j6pfn7j wrote

Ask for a larger loan and you have the freedom to do what works best for you

You ask for $10k loan and oops the tax is $125 more and you're going back to re-do all this paperwork all for a $125 difference.

$15k sale price + 7% tax + $500 dealer fee + $750 tag fee = 17,300 out the door more or less.

minus $5k down payment = $12,300 loan. So in this case just go and ask for minimum $14k so you have the wiggle room.

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nkyguy1988 t1_j6p50ea wrote

You want to pay your down payment first. So in your example, 15k car and add 5k down payment for loan of 10k. In the other example you will still reduce your principal to 10k, however your monthly payment amount will stay the same as a 15k loan, increasing your monthly obligation.

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SolutionLeading t1_j6p589l wrote

A down payment is used to pay off part of the car, and then you finance (get a loan) for the remaining amount.

If you paid the dealership $5k for a car worth $15k, but then get a loan for $15k (which they wouldn’t allow anyway since you have a down payment), you would end up paying $20k (not including interest) for a car only worth $15k.

So it’s better to give them a high down payment so you don’t owe as much on the loan.

The loan has interest too, which means even if you get a loan for $10,000, you will end up paying more than that depending on the interest rate and the length of the loan.

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metal0130 t1_j6p74rg wrote

As others are saying, it's generally advisable to put down as much as you're comfortable parting with up front but please don't leave yourself vulnerable to emergencies.

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