When you are applying for a loan there are many questions that should be going through your mind; however, if it is your first loan, you may not know which ones need asking. Here are three finance related questions you need to ask before you sign any paperwork at the bank or dealership.
What interest rate am I paying?
You need to know the exact Annual Percentage Rate (APR) that is attached to your loan. This is key to knowing how much interest you will pay on the loan balance each year. This rate will depend mainly on your credit score and currently ranges from about four percent to eighteen percent, with slightly lower and higher rates possible for those on the extreme ends of the credit spectrum.
What are all of the fees associated with this loan?
Some car loans have an ”early payment” penalty that may not be fully discussed before the paperwork is signed. This will penalize you if you try and pay off your car early, as lenders don’t want to lose out on any of the interest they expect to gain from this investment. This is legal in the majority of states, but not all. Ask for a printed disclosure of all fees that may be associated with the loan. If the lender will not provide one, then seek a loan form another lender.
What is the total amount being financed?
This amount should match the final price (plus taxes and fees) quoted to you by the dealership. The total amount of interest will be included in the amount financed as well, but should be listed as a separate number from the price of the vehicle. If the total price of the vehicle is different than the quote you got from the dealership, do not sign the loan papers until the error is corrected. This is also your chance to just how much you will pay in total interest over the life of the loan.
While there are other questions to ask, these should help your protect yourself against a shady loan.