When buying a car, the selling price is not your only financial consideration. While you want to get the best deal you can on the selling price of the car, you also need to consider how you are going to finance it. A great deal won?t seem so great if you?re paying on a high interest rate auto loan for several years. Before you sign a dealer or lender?s high interest rate loan application, follow these 5 tips for financing an affordable car.
Check Your Credit Score
When you first decide it is time to get a different car, whether new or used; that is the time to check your credit score and see if any negative information shows up on your credit reports. An error in your report or an old, unpaid debt showing can make the difference between getting a good interest rate when financing an affordable car and paying through the nose.
As you are entitled to a free report each year from the three major credit reporters, Equifax, TransUnion, and Experian, go ahead and order your free reports before you begin shopping. This will allow you to clear up any errors on your report, as errors are quite common. If you have some small unpaid debts showing up, go ahead and take care of those so they are cleared from your report. If you have a large amount of credit card debt through various banks or lenders, you may want to consider consolidating your debt to lower your monthly payments. The better shape you are in financially in terms of your credit history, the more room for negotiation of your finance terms you will have.
Secure Your Own Financing
With the car market being so competitive these days, many dealers have already set the selling prices of their cars at the lowest prices they can, which cuts into their profits. They can still make a ton of money from financing, however, so many will offer you a finance rate that is higher than what you actually qualify for, hoping that you won?t question the rate and will sign the contract. Many buyers get caught up in the excitement of the car buying process, and anxious to get a vehicle home quickly, won?t pay as much attention to the finance charges as they should.
To avoid getting ripped off while in your new (to you) car euphoria, talk to a few local banks once you have an idea of the price range and vehicles you?re considering, and see what kind of financing you can get from them. In some cases, you may be able to get financing at two or more percentage points lower than what a dealer will offer you.
Note the numbers offered to you through banks, and take your notes with you when you go car shopping. Even while caught up in the excitement of a deal, you can easily tell if the interest rate dealers are offering you are higher or lower than those offered by the banks. If the dealer isn?t giving you the best deal, get your loan through the bank and then go back and get your car.
Save Up For A Down Payment And Save Money
Unlike a traditional home mortgage, many lenders don?t require you to make a down payment on your vehicle loan. While this may sound great, and it can be if you need a vehicle right away and don?t have any money saved, it may not be the best way to go for everyone. By paying even $1,000 down, you will save on interest fees. You will be paying interest on every penny you owe, and it adds up considerably.
Save up as much as you can prior to put down on your vehicle and the money you save on interest charges will make your monthly payments much more comfortable for you. If you are offered a cash incentive for buying a vehicle, put that down towards the vehicle as well to save you on finance charges. With the money you?ll save each month on finance charges, you will quickly be able to save up the amount and won?t feel like you?ve lost on a nice chunk of change.
Negotiate Your Rate
If you are getting your vehicle financed through the dealer?s lender, don?t be afraid to ask for a better rate. Some dealers make extra money for themselves by charging you a higher interest rate than required by the lender. The difference between the rate the lender wants and what the dealer charges you is profit for the dealer. Your haggling shouldn?t stop when you have agreed on a price for the vehicle, and it isn?t like the salesman is going to kick you out of the dealership for asking for a better rate.
The salesman may stall and say he has to talk to someone else to see about getting you a lower rate, but this is often just a bluff. Tell the salesman you don?t mind waiting another day or two if it means getting a better rate, and you may find that he is suddenly in a position to do a little more negotiating. Even one percentage point lower will save you money on interest fees, so it is worth the trouble to negotiate.
Don?t Finance The Extras
You?ll already be paying plenty of interest for the cost of your car, so don?t add any options to your car that you can live without. These extras will get added on to the price of your vehicle, and you?ll find that you?re paying way more than some options are worth once the finance charges are added in. If you really want window tinting or an upgraded stereo, for example, save up your money and get the option later for cash.
The same applies to an extended warranty; while an extended warranty is often a good idea on a used car, you may want to pay for that separately with cash rather than adding it to the price you are getting your loan for. If you can?t pay for it upfront, make sure you know exactly what you will be charged for it and the degree of coverage before agreeing to add it to your sales contract.
Photo by Eli?Duke
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Source: http://www.lowbuckcars.com/5-tips-for-financing-an-affordable-car/
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