A big mistake some people make when shopping for a new vehicle is not including the cost of car financing in the total price. Unless you plan to pay cash, negotiating a fair amount should take this into consideration.
For example, the difference between the sticker price and dealer's invoice of your dream car might be approximately $1,500. If you sharpen your bartering skills, you could save at least $1,000 or more.
When you finance the car for four years with a 6% interest rate and no money down, your interest payments over the life of the loan would be over $2,000. Another option is to finance the car at 4% interest for three years. By putting $1,500 down, you would save over $1,000.
Trying to get the most in a car for the lowest price is not a bad idea. However, shopping for the best loan to help you pay for the car without financial strain is better. Going to the dealership with financing in tow is also ideal because without it, you could be vulnerable to dealer terms, which may come with a higher interest rate.
Your target is getting the total cost of a loan to balance against an affordable monthly payment. However, concentrating solely on the monthly payment does not guarantee getting the best deal.
Consider the Total Cost of a Loan
When you are comparing car loans, the annual percentage rate (APR) should be your primary focus. A low rate offers significant savings long-term. Too many consumers end up with the car they love and a payment they hate. The newness will wear off quicker than it takes to pay off the loan.
Also part of the type of financing you get is how long it takes to pay the car off. Known as the term of a loan, the total cost of financing a vehicle and the monthly payment are significantly affected by the term.
A shorter term equals high monthly payments. However, you will pay less money for the car overall. Alternately, a long-term repayment schedule gives you a lower monthly payment, but will cost you more in interest over time. Try to get a loan term as short as you can afford.
Try to Get Preapproved
There are many advantages to securing the financing for a car purchase before going to the dealer. First, you can compare different offers and interest rates for which you may qualify.
Rates can vary from one lender to another, even if you have perfect credit. Still, you stand a better chance of getting a rate that is lower than what some dealer financing programs offer.
Second, preapproval gives you peace of mind because you walk into the dealership with enough money to cover the cost of buying a car. There is no guessing about the interest rate or term.
Typically, you will need to know the type of vehicle you want and how much it will cost. Subtract your down payment to see how much you will need to borrow.
Since preapproval loans are usually for people with good credit, know your credit score before applying. If your credit is less than perfect, you can still get financing quotes before going to buy a car.
Some online lenders allow people with less than stellar credit to apply. They provide an interest rate and the maximum amount that you can borrow for a vehicle. If the dealer offers you a better deal, you are not obligated to accept the lender's loan package.
Where to Shop for a Car Loan
There are literally hundreds, if not thousands, of auto finance businesses making car loan every year. National banks and credit institutions lead in some areas. Captive finance companies, which belong to automakers, are also available.
Captive finance companies may offer some of the best deals, particularly if the automaker decides to subsidize the loans.
Other lenders such as local banks, credit unions and finance companies are viable places that you can research. The APR changes daily, so it might be just a matter of contacting the right financing source at the right time for a comfortable interest rate and loan term.
Don't Finance Miscellaneous Expenses
Whichever financing company you choose, do not roll taxes, fees and any extras into the loan. It is tempting to not have to pay these expenses upfront. But if possible, pay these miscellaneous expenses with cash.
Adding some or all of these fees to your financed loan can put you upside down because you are increasing the amount you are borrowing without adding value to the vehicle.
There is a lot that goes into buying a new vehicle. To be successful in your next purchase, you want to make the right choice about several different things. Choose the right vehicle for your transportation needs. Negotiate a good price and find affordable funding.
Deciding to borrow money for your next purchase comes with making wise financial choices. You want a vehicle that you can afford so you avoid the expensive cost of being delinquent or defaulting on the loan.
Do your homework. Shop around to get a good idea of what is available so your next vehicle purchase does not cost too much.