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8 Questions to Ask When You Finance a New Auto

Don’t sign to finance a new auto before you ask these critical eight questions. These questions will help you coax the most important details out of your lender.

  1. What is my APR?  The APR is the best way to compare quotes to finance a new auto, and the best way to gauge the true cost of your car loan.  By law, lenders have to calculate APRs the same way, so it is a more valid basis of comparison than the advertised interest rates on car loans.  The APR takes into account the interest rate in addition to all other fees and charges to reflect your annual cost of borrowing.
  2. What penalties does my loan have?  Watch for hidden penalties when you finance a new auto.  Buried deep in the fine print, penalties might include prepayment penalties (if you pay the loan off early) and other extra charges that your lender might assess over the term of the loan.
  3. What is the exact price of my car?  Make sure you know what portion of your loan is the principal, or actual cost of the vehicle, and what portion is interest expense.  Especially if you finance a new auto with a dealership, you will need to ask them (probably repeatedly) for the exact price of the car, down to the penny.  Dealers tend to want to quote you monthly payments instead of prices to disguise overcharging.
  4. What is the exact amount I’m financing?  This is especially important to ask your lender when you finance a new auto because you will need to make sure it matches the price of the car you’ve picked out.
  5. What is my cost of borrowing (finance charge)?  This is a charge on top of the loan’s principal that represents how much you are paying for the convenience of credit.
  6. What is the exact amount of my monthly payment?  Knowing your monthly payment is especially important because you will need to budget around this number.  Make sure you know the exact amount of the payments, down to the last cent, when you finance a new auto.
  7. How many total payments will I have to make?  Most people finance a new car for a term of 3-5 years, which means you will usually have between 36-60 payments.  Verify this with your lender.
  8. Will I need credit insurance?  Some lenders require credit insurance before they will finance a new auto.  Other lenders offer credit insurance but do not demand it.  Credit insurance is not required by federal law, though some states do require it.  Make sure the costs of credit insurance, if required, are included in your APR.

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