Consumers can sometimes get caught up in the price of a vehicle without exploring other elements such as auto loans. Some say going to the dealership without a financing option could set you up for a financial rip-off. The dealership may decide to make you pay more for the vehicle by increasing the interest rate.
Here are a few car loans tips to review before you buy:
1. Be willing to negotiate the price
Consumers may find the aspect of negotiating a challenge, but you have to think about the car salesman. They do it regularly and sometimes they do it to make the buyer spend more than they intended. Don’t fall into this trap!
Car dealers often negotiate monthly payment costs over the price of the car. Think about questions they will ask you, such as how much you want to pay per month. It is best to negotiate the price of the car instead of monthly payments since you could end up paying more for the car than what it is worth later on.
2. Short-term loans are better
It is suggested to keep your loan term as short as possible. Lenders have programs that make it look as if they are offering borrowers lower monthly payments. But they just extend the loan longer to make monthly payments appear cheaper.
You can have up to 7 years to finance a vehicle, but experts suggest a loan term of 4 years or less, with 5 years the max. A car depreciates as soon as it leaves the car lot and continues each year. An upside car loan may result if you have a car loan for more than 60 months.
3. Do away with extras
Dealers may offer other items and products for your car. Some are great, but the markup is atrocious. You may end up paying more for stuff you may not even need.
The extras, such as extended warranties, fabric guard, rustproofing, paint protection, and others, are likely things you can do without. You can shop around and find cheaper options. Just do your homework on any extras before deciding to buy.
4. Turn away loans with high interest
You don’t have to settle for high-interest loans because your credit score isn’t perfect. Of course, people with good credit can get an APR in the single digits. If you have average credit, it can be roughly 10% to 12%. The APR can be 15% or higher for borrowers with bad credit and the interest rate can soar to 24%. A car loan with a high rate is never worth it when you can shop around and find something better.
5. Don’t let emotions make the decision for you
Test driving a car can be a great feeling. But don’t feel bad if you can’t afford it, or if you can’t negotiate a deal. For some consumers, purchasing a car can be emotional, but don’t let emotions dictate your actions.
You are paying for the car with your hard earned money. Know when to walk away. Doing this will save you from entering a bad car loan you may regret later.
6. Be responsible about debts and save money
Making yourself known to the right car lender includes being financially responsible. If you want a great deal on a car, you need to show the lender you are taking care of liabilities. Any outstanding debt you have should be in good standing.
Paying off your debt will look even better to lenders. Not having a lot of debt also shows you have cash (disposable income) to make payments. Plus, you will need income to maintain vehicle maintenance and insurance.
7. Choose a reasonable vehicle you can afford
You should choose a car loan you can maintain as well as the right vehicle. If your loan application states you’re asking for a boatload of money, the lender will likely reject it.
Other costs to consider include title, registration, insurance, and license. Don’t come off to lenders as being irresponsible. Show you are being considerate but be able to follow up when making payments.
8. Have a co-signer
Lenders may grant approval if they know the loan is secured. In other words, you may need to give up something or have a backup plan in case you can’t make payments. Borrowers can have a co-signer to guarantee the loan.
The borrower may also agree to have the vehicle repossessed if payments can’t be made. This part of the deal helps lender breathe easier and more likely to approve the loan.
9. Compare first, apply later
Millions of consumers use the internet to learn more about car loans. It is a fast way to learn about different finance options. But before you apply, compare lenders first. If you start applying, your credit report will be pulled by the lender. Too many views can hurt your score. If you want more information without applying, contact the lender. If you filled out information online, reject the option to have your credit history reviewed until you are ready to apply.
10. Know your credit history
One of the biggest factors in gaining car loan approval is your credit report. Now is the time to get a copy and review it. Make sure previous and current creditors are reporting your payments. Check for any inaccuracies as they can hurt chances for approval.
There are three credit reporting agencies (Transunion, Equifax, and Experian) where you can get a free copy.
11. Know your loan in and out
Get to know your car loan, and how it works. Review all details related to the loan, including the interest rate, length of the loan, and APR. Read fine print carefully to learn any hidden fees, penalties, or other information related to the loan.
Shop around for different loans. It is common to work with an auto finance service, but this can include a credit union, specialized lending solutions, banks, and so on.
12. Timing of purchase
Some financial experts suggest purchasing a vehicle at the beginning or end of the year. In some cases, this makes sense since car dealers are making room for new inventory. Another tip is to consider making a purchase toward the end of the month. Car dealers may be required to hit a sales quota for the month and they may be willing to work with you.
13. Learn about pre-financing
Pre-financing allows potential borrowers to get a quote from a financial institution such as a bank or credit union. If you have an account with a bank or credit union, you may qualify for a discount on a car loan.
Pre-financing gives a general idea of what your loan amount will be. Use this information to help purchase a car at a dealer instead of doing financing at the dealership. Financing with the dealer could lead to higher loan rates.
14. Consider new or used vehicles
There is nothing wrong with getting a used car. New cars depreciate quickly, so some consumers may not be up for the purchase for this reason alone. There are advantages and disadvantages for both variants. Be open to possibilities and consider what is best for you.
15. Give the car a test drive
Take the car for a test drive before making a final decision to buy it. Believe it or not, many people will buy a car without test-driving it! The car should be silent when idle, have operating controls including wipers and signals and good brakes. A test drive often concludes your overall decision on whether to purchase the vehicle or not.
Purchasing a car is not an easy task, but you shouldn’t approach as an insurmountable obstacle. There are ways to prevent many problems from happening, and the only thing that is really required of you is caution and attention to detail. Remember to always compare your options and don’t fear to walk away from a bad deal.