First Car Loan? Here Are Some Things to Know



Whether you're 18 or 48, at some point you're likely to buy a new car – even if it's just new to you. Unfortunately, cars aren't cheap. That's why many people go for an auto loan.

The issue? Auto loans are confusing, especially if you've never had a loan before.

Between APR, GAP, MRC, terms, and down payments, you're basically swimming through an ocean of acronyms and words that might not make sense to you. And that's okay! I didn't know the answers at first, either. We're here to help make sense of it.

So, here are some things I learned at 23 with my first car loan (and by virtue of working at Visions).


All about that APR

APR. The thing most people see first. APR is an acronym, meaning "Annual Percentage Rate." Most people just call it the interest rate, though.

Does the APR matter? 

Yes. Yes it does. 

If you're not familiar with loans, your APR is how much the institution will charge you to take out a loan. And, while APR and interest rates are technically a little different, it's the interest charge and subsequent payment that you need to think about – especially when added up with the principal plus auto coverage (see "The Extra Stuff" below) and debt protection to make your total monthly payment. (If your head is spinning, check out our auto loan calculators. They're super sweet.)

What determines my APR?

Your APR varies based on many things – your credit score being the biggest factor. The better your credit score, the lower your APR is likely to be. That's because lenders look at credit scores as a form of financial trust. With a higher credit score, they figure they're more likely to be paid back, thus the lower rate.

Alright, give me the term

In the lending world, "term" can mean many things – your agreement, what you promise to abide by, stuff like that. But when people mention "rates and terms," they're typically talking about how long you're taking the loan out for. Generally speaking, the longer the term, the higher the APR. 

Longer term + higher rate = the more you're going to pay. Whether it's worth having the extra cash each month or to pay more over time – that's up to you. Just remember that you can always pay more than your standard payment, but you can never pay less. So, if you opt for the cheaper payment and pay extra, you're going to pay it off sooner and pay less overall.

What if my credit is poor?

Well, you're going to pay more. Sometimes significantly more. Higher credit scores can qualify for lower interest rates, which translate to savings.

Remember, though: you still have a car and you're working toward a credit score you can be proud of. It's something that's worthwhile in the end. And, if you want to learn more about credit scores, check out our FICO scores page. Don't feel like reading more? Watch this handsome guy on YouTube (me) talk about credit basics and how to build and rebuild it here.

And, don't forget about co-borrowers. If you have a family member or someone you trust with a solid credit score, their good score can outweigh yours, leading to more favorable terms.


The Extra Stuff

Here are three more things to consider when you're picking out your next ride:

  1. Insurance. You'll need it for an auto loan and Visions provides our members with discounted rates
  2. GAP, or Guaranteed Asset Protection. This optional coverage can help make up the difference in what you owe versus what your vehicle is worth in case of a loss or theft. Because of rates and terms, an insurance settlement doesn't always cover everything – that's why GAP is so valuable (and you can finance it into your loan payment)
  3. MRC, or Mechanical Repair Coverage. Think of it as warranty coverage – valuable peace of mind that can typically be financed right into your loan, too


Your lender matters

Above all, choose a financial partner you can trust. You want someone local you can trust with rates and terms that work for your budget.

Learn more about our auto loans and give us a call at 800.242.2120 if you have any questions.


-Devin M.

MoneyTalks Financial Blog Articles

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