Getting That Car Loan: Simple Interest Loan Is The Best

Pete Lance

So here is the situation: you are buying a car but you don't know what type of car loan offers you should go for. What should you go for?

The answer is simple enough: get a simple interest loan.

What is a simple interest loan anyway?

A simple interest loan is a loan where you pay interest only on the original principal of the loan.

The good thing is, 90% of all car loan offers are simple interest loans, although there are some lenders who are pushing car loans that are not. You should never agree to an car loan that is not a simple interest loan.

The second thing you don't want on your car loan is pre-payment penalties. A car loan without pre-payment penalties means that the lender will not charge you an extra fee if you pay the loan off early either through refinancing or other means.

Remember that it is always easiest, and refinancing will save you the most money, when a simple interest car loan with no prepayment penalties is refinanced with another simple interest car loan at a lower interest rate.

Some lenders offer car loans that are known as pre-computer loans. Sub prime lenders will often target high risk borrowers with pre-computed auto loans, and some used car dealers might push this type of car loan financing.

If you sign up for this type of car loan, you are legally committed to paying for the full principal balance of the loan as well as the total amount of all interest that would accrue over the life of the car loan.

Furthermore, if you pay off your pre-computed auto loan early, the lender often uses an outdated and expensive formula known as the rule of 78s to make you pay a large sum of money for paying off the loan early.

Never go for this type of loans.

Sometimes, the best advice is the hold out for the best offer. If the first lender does not offer a simple interest auto loan with no pre-payment penalties at a reasonable and competitive interest, find another lender who will give you a better price. There are many lenders who are eager to compete for your auto loan financing.

The world has become so small its a buyers market. Check out local banks, auto dealers and online resources for the best interest rates with the fewest fees. By thoroughly investigating all of your options, you will definitely get a loan that is perfect for you!