Get the best loan possible
As with any big purchase, when purchasing a car you’ll want to make sure that you get the best deal possible, and that requires being smart about getting a car loan. Many people tend to overlook certain things during this process — they want to get in and out and on the road — but even a small oversight could cost you big bucks.
“When you buy a car, make sure it’s something you can afford, something that truly meets your budget,” adds Senior Director of Auto Finance Melinda Zabritski 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:
Know your credit score – It’s a good idea to check your credit by getting a preapproved car loan. Your credit score helps determine your car financing interest rate and is based on your credit report. If you have a high score, you qualify for a better car loan rate than if you have a low score. Thus, if you don’t know your credit score beforehand, you’re at a disadvantage when it comes to getting a good rate.
“Most people think their credit score is worse than it is,” says Senior Consumer Advice Editor Phil Reed at Edmunds.com. “When people don’t know their credit rating, the dealer can tell them almost anything.”
Avoid add-ons – Often you can finance add-ons — anything from leather seats to chrome wheels — separately. And while it may seem convenient to purchase them on the spot, your wallet might not agree.
Car salespeople “are really there to make extra profit for the dealership by increasing interest rates and selling extended warranties and add-ons such as fabric protection and paint sealant,” Reed says. “Dealers can write other fees into the contract and give them official-sounding names. These fees are another attempt to take profit on the back end of the deal when the buyer’s guard is down.” If you’re really aching for upscale window tinting, check with other companies, which may offer it for less money.
Do your homework – Know that lenders aren’t obligated to offer you the best possible rate for which you qualify. In general, new cars typically offer lower interest rates compared with used cars. In 2007, for example, car dealers marked up loans by an average 1.8 percent on used cars and 0.6 percent on new ones. To avoid overpaying on your loan, inform the lender that you’re looking in various places for your vehicle or that you already have another offer. That may help you get a better rate.
Keep quiet about what you can afford – You don’t want to go to a dealership and announce the exact monthly payment amount that you’re willing to pay each month. That may cause car dealers to use the longest auto loan term available to figure out your potential rates for monthly installments. For example, a car that costs $25,000 with a five-year loan may require the same monthly payments as a $16,000 car with a three-year loan — but you’ll end up paying more in interest for the higher-priced vehicle. Sometimes, if the car salesperson knows how much you can afford per month, negotiating a lower purchase price may be harder to do.
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. Is there a 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.”
Stop by today to find out more about what rates we can offer so you can shop with confidence.Used with Permission. Published by IMN Bank Adviser Includes copyrighted material of IMakeNews, Inc. and its suppliers.