The Smart Shopper’s Guide to Getting an Auto Loan
The following ways will help you get the best deals on your car loan so be sure to keep them in mind before and during your trip to the dealership.
Before you even go to the dealership, you have to have an idea of the car you want and how much you are willing to pay for it. This is more complicated than you might initially think. After all, how difficult could choosing a car be? But the price, make, and model are just the tip of the iceberg. You have to compute if the price range is within your capacity to pay so that means taking a close look at your savings and your budget and whether a car loan has a place there. If the car you like is not affordable, it might be necessary to find another kind or you might be willing to cut expenses somewhere else so that you can get the vehicle of your dreams.
Doing this is easier now, what with the Internet allowing you to visit websites that give you price ranges of various cars by brand and other criteria. Be savvy and do online searches so that you have a general idea of the type of car to buy that will be within your spending plan.
There are many sources of car financing so don’t immediately assume that the car dealership is the only place to get your loan. In fact, you can get more competitive rates in banks or credit unions (if you are a member) than at a dealership so be sure to include them when you go comparison shopping. Use the Internet to your advantage so you save time and energy when getting quotes. Be sure to compare apples to apples so that you know where the best deals can be found.
Other sources of financing include online financial institutions, getting a home equity loan, or borrowing from a rich friend or relative. However, you do have to watch out for some pitfalls. Some online lenders can scam you so you need to check that you’re dealing with a legitimate business. Getting a home equity loan to buy your car is very risky and not recommended because you are essentially guaranteeing your home for your car which means that you lose your home if you don’t make your car payments. Borrowing from rich friends and relatives can be ruin relationships if you don’t keep your promise to pay.
Just like getting a home mortgage, preapproval is the process whereby your financial information is reviewed and the lender gives you the range of loan that you can afford based on your debts, income, and other factors. Choosing a car becomes easier when you know how much you can actually spend. It also takes a lot of the stress out when you are already car shopping. Be sure to ask for a very competitive rate when you are getting pre approval from the lender. Some lenders literally give preapproved creditors blank checks so they can fill it out themselves and give to the dealer when they have decided on a car to buy.
Dealers are shrewd businessmen. Some of the more unscrupulous ones will give you a very tempting financing offer—a low-interest loan. But if you agree to it before you even know the price of the car you want to purchase, the dealer could simply jack up the price of the car so he still makes a substantial profit. You can haggle with the dealer by researching the prices of the cars you intend to get in consumer sites like Kelley Blue Book (
www.kbb.com). Normally, the sticker price of the car is 5 to 10 percent of what he paid for it so if you do your research beforehand, you will know what this price is and can bargain more readily. As much as possible pay no more than 5 percent above the price the dealer got the car for.
In the same way that you don’t discuss financing until and unless you have already agreed on the price of a car, you should not reveal how much you are willing to pay each month for a car. They can do all sorts of mathematical calculations to match the monthly payment you are willing to fork out. For example, they can increase the interest rate or even the car price just so that they can match what you are willing to pay for each month. The figures may not even reflect the actual value of the car. So if you are pressed on how much you can pay each month, firmly but politely say that you want to see the cars first and get the final price first before discussing loans and terms.
Yes, it is tempting to go with low down payment auto loans. But you’ll certainly bleed with the interest while you are paying it off. As much as possible, save at least 20 percent for the downpayment so that the monthly payments are manageable and the interest rates competitive. If you don’t have this kind of money for the downpayment, you can always downgrade to a less expensive model or get a used car instead.
A car immediately loses value the moment you drive it away from the dealership. This is a fact. So why should you go for long-term car loans of five years or even more? Some defend longer term financing because it makes the monthly payments lower. The problem is, you are also paying a lot more in interest overall. In some cases, by the time you sell your car, you already have excessively paid a lot more for it. So don’t be tempted for long-term financing. Strive to pay off your car loan in four years or even less so you can free up your money earlier and use it for something more productive.
Here’s one more thing: You don’t have to change cars every now and then. A lot of Americans seem to be of the mindset that a car loan is a normal and perpetual part of the budget. You are not obligated to sell your car and get a new one every five years. For as long as you maintain it and take good care of your wheels, it should serve you faithfully for a long time.
Finally, if you originally opted for a longer loan term but later decide that paying it off earlier is better, be sure to read your contract again. You want to be certain that you’re not going to be paying penalties for paying off your loan early.
Car dealers make a lot of money by putting addons into your car purchase so that you end up paying more. The FDIC Car Loan Shopping Guide states:” Service contracts, credit insurance, extended warranties, and other options are not required and can be costly over the term of the loan.” So be sure to read your contract before signing and don’t let the dealer coerce you into getting these things which are not really necessary. You’ll surely save a bundle.
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