by Georg Sander
Buying a new or used car? An automobile is undoubtedly one of the largest purchases you will make this year. Unless you are prepared to fork out 100% of the cash needed for the purchase, you are going to need to navigate the world of car financing.
And when it comes to buying a car, financing is no insignificant detail: the choices you make now about your loan’s interest rate, how long you will take to repay your loan, and the amount of your down payment will play a big part in your financial future for the length of the loan and beyond.
Before you buy a car, check out these 7 best car financing tips:
1. Check the newspaper or online for the best advertised interest rates: As the economy goes through its natural cycles in terms of the availability and cost of borrowing money, interest rates go through their own cycles as well. A great way to gauge the current interest rate climate is to check the newspaper or auto dealer websites for their current best deals. You can rest assured that the advertised deals are their best, since those ads work to get people in the door. For example, if you see some 0% interest rate deals being advertised, you now know the best-case scenario for when you approach a dealership.
2. Decide how much cash you can put down: The amount of your monthly payments, as well as the total interest you pay over the life of an auto loan, depend on the payback period of your loan and the amount you are willing to put down in cash. Obviously, the more you can afford to put down in cash for your car now, the less you will have to borrow. Be sure to put down as much as possible, but of course leave yourself a “padding” of money for a rainy day.
3. Get pre-approved for a loan before visiting the dealership: Once you walk onto the lot of an auto dealership, you are much more likely to buy a car from them than otherwise. And, the dealership personnel know this. A great way to keep your options open in terms of getting the best car financing is to go to your local credit union or bank and get pre-approved for an auto loan before heading to the dealership. That way, when talking to the dealership you will have in the back of your mind a next-best option in case you can’t get the financing deal you want through them.
4. Negotiate your auto price with financing in mind: Remember that the entire dealership works as a team. If you negotiate an exceptionally low price on the car with the salesperson, chances are that the finance department will try to get you into a more expensive financing deal. Are they crooks? Not likely. Rather, just like anyone else, they are trying to turn a profit.
5. Never accept the first financing offer: Once you have agreed upon a price of your new car and you are sitting down with the financing person to discuss loan terms, let him or her make the first financing offer. No matter how reasonable it seems, make sure to reject the first offer he or she presents to you. Remember, they can always do better. Ask for better terms and you will likely get what you ask for.
6. Choose the shortest payback period possible: Opting for a longer payback period of say 6 or 7 years may seem attractive, given the much lower monthly payments. But, remember that in doing so you will be paying a small fortune in interest over the life of the loan. Not only that, but you may get tired of your car and want a new one before the next 7 years go by. All the more reason to agree to a 3 or 4-year loan, if you can swing the payments.
7. Remember that you can always walk away before signing: While at the dealership, always keep this in mind: you always have a lot of other options. Sure, some of them may require a bit farther of a drive to get to, but you should never feel obligated to buy from the first dealership you contact. Just knowing that you have other options will take the pressure off, helping you avoid agreeing to a financing deal that you are not comfortable with.
Keep your eyes open and ears perked during the entire car financing negotiation process. Do not let your guard down until you drive off the lot with your car. And remember: you can always decide to try your luck somewhere else.