The automobile industry can be a convoluted one at best and a downright manipulative one at worst. It is incredibly easy to get stuck with a poor deal and it seems as though everyone knows the rules of the game except for you. Auto loans and car financing do not escape this trend. The following post, however, will help you figure out the smartest way for you to finance your car, without being taken advantage of my scummy salesman. These details will help you not only do that, but also finance your car and auto loan in a way that makes the most sense financially.
The first thing that you should pay attention to is the rate of interest on the auto loan. These can vary from 3% all the way to 25%. Usually, the interest rate is decided based on your credit score or repayment history, but there is room for negotiation. Obviously, you should always try to get the rate as absolutely low as possible. Lower interest rates means that you pay back less money total over time, which is what you want. Most people think that you can only negotiate the price of the actual car, but you can negotiate the specific terms of your financing as well. Also note that you definitely should not be waiting until you are sitting in the car salesman’s office to think about your ideal financing scenario. Rather, think about this before you even go to the dealership. There are resources and calculators online that can help you determine the best rate for you, given your credit score and other factors. Walking into the car dealership with this information ready will be a massive step up when it comes to negotiating the specific terms of your financing with the salesman there.
Another good piece of advice is to not think of a car purchase or auto loan as an investment, because it is not. Cars depreciate faster than almost anything else you can buy. Thus, just because the dealer tells you that you have the credit and can afford a crazy expensive car – does not mean that you actually can. Because a car is such a poor investment, don’t buy the most expensive car you can, because that means more interest on something that is rapidly losing value. Try thinking about it in terms of total cost, rather than just the monthly payment. If you think about just the monthly payment, it is really easy to get sucked into thinking that you can afford more than you actually can. Moreover, total cost can vary a lot and thinking about your auto loan in this way will also help you avoid predatory or high interest loans. There are a few methods to thinking about and assessing your auto loan that will help you make the best and more informed decision.
Before going to the dealership, look at your credit score and credit reports. There are several different tools available to do this online, both third party applications as well as through your banking institution. Be aware that the better your credit score is, the better rate you can get on an auto loan. Obviously, the converse of that statement is true as well. If you have bad or middling credit, do not be scared to negotiate, still. Dealers know this and will give you an even worse loan because they know that most people in your situation would be too intimidated or embarrassed to say otherwise.
To piggyback off of the prior strategy, get financing quotes before you go to the dealership. Again, there is a plethora of online resources dedicated to doing just this, so use one or more of those to get some realistic estimates. These can be used in negotiations with dealers – and they can help assure that you do not get taken advantage of. Local banks, credit unions, and otherwise smaller groups and online lenders will still offer relatively competitive rates to individuals that do not have incredible credit. This is something to keep in mind. Furthermore, you can use these reports to assess whether or not you will truly be able to afford the financing on your car.
Once you have your financing options and auto loan, keep the term as short as you can possibly manage. The shorter the loan, the lower the interest rate, but the higher the monthly payment. Shorter loans, however, are less total money overall because you pay significantly less interest. Dealers are sneaky about this often, though, and will try to make car sales by only stating the monthly payments. It may seem odd, but you should also go with the options with a higher monthly payment because those are actually the best deal overall.
Finally, there are a few steps that you should take to further reduce the life of your auto loan. Reducing the time you have the loan is always a safe bet, because it means you pay less interest overall. Always put a down payment on a car, even if it is not required. Aim for at least 20%. A larger down payment will make it easier to sell the car sooner, if that is what you decide to do. It also makes the loan that much shorter, which is less extra interest paid on the car. Finally, it helps you keep from getting trapped with a car that you cannot actually afford. Also, do not get any of the extra taxes or fees or registrations added to your loan or financing. Pay these with cash or card upfront. Why? Because this increases the amount of money on the loan and thus increases the amount of interest needed to be paid… but it does this without increasing the value of the car.
Hopefully, these tips help you get a better deal on your next auto loan and financing. With proper planning you can have a successful time!