Why the right auto loan is so important—and how to get there
If you’re looking
to buy a new car, you’re probably looking for the best price, too. And part of acquiring a good deal on your vehicle is getting the best car loan possible. But not all car shoppers shop smart—they want to get in, get out and get on the road with their new vehicle.
Don’t make that mistake. Sometimes if you’re in a rush and don’t do your homework, you’ll wind up paying more than you should for an auto loan. And nobody wants that.
“The big mistakes are made in the financing office,” explains Phil Reed, the senior consumer advice editor at Edmunds.com, the auto research website. “Making the right decisions can save thousands over the life of the loan.”
“When you buy a car, make sure it’s something you can afford, something that truly meets your budget,” adds Melinda Zabritski, senior director of auto finance at Experian Automotive. Otherwise you could risk running into financial problems in the future.
To make sure you’re making the right choice regarding an auto loan, here are five tips to keep in mind before you sign on the dotted line:
Evaluate your credit reports. It’s important to check your credit report at all three of the major credit reporting agencies, which are Experian, Equifax and TransUnion.
“You want to check all three because you don’t know which one the lender will use and you want to give yourself time to fix any mistakes,” explains Gerri Detweiler, director of consumer education for Credit.com. “I found a mistake when I went to buy a car a few years ago, and if I hadn’t straightened it out, it would have cost me a lot of money.”
In addition, checking your credit score beforehand will help you determine around where your interest rates will be. You are allotted one free report from each credit bureau once per year. The site www.annualcreditreport.com is the best place to obtain your annual free credit report from each of the credit bureaus.
Shop for second and third opinions. Most shoppers will finance at the car dealership where they’re buying their vehicle simply because it’s convenient—but it may not offer the best deal. In fact, local financial institutions typically offer the best rates on car loans.
“A lot of people just assume they’re getting the best rate and terms from the dealer, and that’s the last assumption you should make,” says Liz Weston, personal finance columnist and author of the book “Deal with Your Debt.” “You can apply for that loan, have it all set up, and then pull the plug at the last minute, if the dealer’s offer is better.”
…But shop for a maximum of two weeks. Anything longer than two weeks can hurt your wallet. How? Each time you apply for a loan (regardless of whether you’re approved or you take the loan), your credit score can be negatively impacted, which can make it harder to get a good loan. So in the interest of saving money—and time—keep your rate shopping to a two-week maximum, experts advise.
Go for the shorter-term loan. Most car buyers tend to lean toward longer loans because the monthly payment is smaller. However, in the long run, you’re actually paying more the longer the loan runs, due to interest.
“You definitely pay more in the long run because these long loans typically have high interest rates,” says Mike Quincy of Consumer Reports Autos. The perfect loan time for your vehicle?
“Try to limit your car loan to about 48 months,” advises Quincy. “That’s the optimal amount of time you should pay for your car.”
One of the first questions most salespeople will likely ask you is how much you can afford to pay each month for your vehicle. However, there’s no obligation for you to answer that—and you shouldn’t want to. If you focus on only the monthly payment, you won’t know the exact value of your trade-in, and you could wind up getting ripped off.
“If you just look at the monthly payment, you’ll have no idea what you’re being charged for the car, you won’t really know what you’re getting for your old vehicle and you won’t know what the interest rate really is,” says Jack Gillis, author of “The Car Book 2014.” “The artificially low monthly payment will disguise the fact that you’re paying more than you should for the car and financing and getting less than you could for your trade-in.”
Use these helpful tips to work out the best possible deal, and don’t forget to stop by to find out the best possible rates we have for you so your purchase can be as stress-free as possible.
Used with Permission. Published by IMN Bank Adviser Includes copyrighted material of IMakeNews, Inc. and its suppliers.