Not everyone can afford to buy new cars outright. In fact, a whopping 84.5 percent of car buyers used some form of financing to acquire their vehicle and that figure continues to rise. These borrowers are either securing loans or entering into leases to purchase newer and more reliable cars. Unfortunately, not everyone who finances really understands the terms of their financing before they sign on the dotted line.

If you’re planning to visit a local car lot to test out the car that you’ve been seeing on commercials nightly, you need to research the vehicle spec, but you also need to research financing terms that you’ll come across as you’re applying for auto loans. You never want to enter into a contract for 4, 5, or even 6 years if you don’t understand the terms. Here’s how to tell if you’re getting good terms on your loan.

Make Sure Your Term Isn’t Too Long

If you’re sitting in the dealer’s finance office, the first thing that they will ask you is what your budget is. That’s how the salesman tries to work with the pricing of the car and the financing to see what they can offer you without going so low that the dealer can’t profit. The best way for the salesman to get your pricing lower is to lower the sticker price of the car.

Unfortunately, some buyers think they are getting a better deal when they have a lower monthly payment offer when in actuality you’re just going to wind up paying more over the term of the loan. This happens when the agent extends the terms of your loan instead of driving the price down. Look at term on the loan. You may be paying more for a 48-month term but you pay less in the end. If you’re being offered a 72-month loan, try to lower it or you’ll be paying for the car long after its useful life.

Is the Interest Rate Fair?

As you’re shopping for a car at your favorite St. George Hyundai dealership or one in your particular locale, you are looking for current sales and markdowns before you’re looking at the cost of a loan. You can start to look for the right model, the right trim level, and the right color before you compare finance charges, but eventually, you’ll have to assess the cost of financing.

Interest is going to have the biggest impact on your total finance charges. This is the charge that accrues over the term of the loan. It’s the amount of money that the lender earns over the life of the loan. If the dealer is offering you an interest rate well above the current yield, you should shop around on your own. You can go to your bank or credit union and ask for a pre-approval, which is a wise way to lower your interest while still being able to take advantage of sales.

Is it a Simple Interest Loan?

You have to find out how your interest accumulates on your loan before you know if it’s the right choice. There are lenders that offer less than desirable loans where the interest is charged at the front end of the loan. That means that most of the money paid during the first half of your term goes to interest instead of principal. Look for a lender that will add interest charges equally for the whole term.

Are You Paying Interest on Add-ons?

You don’t just finance the cost of the car, you also finance the cost of the sales tax and titling fees. If you roll over negative equity on the loan, you’ll be paying interest on that equity too. Be sure to look at the add-ons and see if it’s worth it to finance warranty fees and GAP premiums. This only increases the true cost to own your car.

No one wants to pay more than they have to for any consumer good. If you’re shopping for a reliable car, look for a fair loan. Compare the terms of the loan before you enter into the contract. If you’re stuck in a bad contract, look around to refinance as soon as possible.