Doing your homework before walking into a dealership can help you save
You’ve decided to buy a car
— whether new or used — and all you keep thinking about is how exciting it will be to drive home with a new toy. While car buying can be fun, doing your research before you walk into the dealership can help you save money. Consider these tips when planning your new purchase.
According to a September 2014 article on NBC’s “Today” show’s website by consumer expert Herb Weisbaum, before walking into the dealership, you should know your credit scores from the three major credit reporting agencies: 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,” says Director of Consumer Education for Credit.com Gerri Detweiler. “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.”
You can use AnnualCreditReport.com, set up by the federal government, or free credit sites like CreditKarma.com or Credit.com.
Shop around first
Don’t make the mistake of walking into a dealership without first checking out auto loans from other financers, including local financial institutions. You can even get preapproved for a loan, so you know what your best possible rate is going in.
“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, author of the book “Deal with Your Debt.” Shopping around for an interest rate can also protect you from hidden dealership fees.
“Dealers are legally allowed to add to your interest rate in order to compensate themselves … in effect, hiding the size of their profit from the buyer. The only way you’re going to know if you’re getting the best rate out there is if you’ve gotten quotes from other lenders,” reports a June 2012 article in Time magazine by writer and editor Martha C. White. The Time article also warns consumers about dealers who offer to pay off the loan on your trade-in vehicle. In some cases, the dealership will pay it off but then add and hide the loan cost in your new loan.
Choose the shortest loan term you can afford
Those 60- and 72-month loans may look great in the dealership with their low monthly payments, but you’ll end up paying more in the long run with extended months of interest.
“Try to limit your car loan to about 48 months. That’s the optimal amount of time you should pay for your car,” says Automotive Content Specialist Mike Quincy with Consumer Reports Autos.
Make a down payment
Don’t be fooled by the signs and flyers at your local dealership promising low monthly payments with zero dollars down; very few people end up qualifying for these deals. If you can afford to, make a down payment on your purchase to save money in the long run.
“Having a down payment will help you qualify for a loan and may help you obtain a lower interest rate. Lenders tend to look favorably upon borrowers prepared to make a down payment because it makes default on the loan less likely,” reports Experian, global leader in consumer and business credit reporting, in its FAQ section.
Buy add-ons separately
Would your car look cooler with a nice set of chrome rims or a leather interior instead of fabric? Most likely, but adding these upgrades to your auto loan will only increase your monthly payments and possibly your interest rate.
“About 50 percent of a dealer’s profits come from the finance office,” says Chris Kukla, senior counsel for government affairs at the Center for Responsible Lending, in a June 2012 article for Time. As a result, car salespeople will upsell their add-on services because they’re looking to increase their profit, not help you with your costs.
Purchasing add-ons after your loan is finalized will also allow you to better evaluate the need versus cost for each, helping you save money and purchase only those services that fit within your budget.
If you have additional questions on how to get the best auto loan, contact us and one of our representatives will be happy to help.
Used with Permission. Published by IMN Bank Adviser Includes copyrighted material of IMakeNews, Inc. and its suppliers.