The cost of a new vehicle has risen sufficiently that paying it off at the time of purchase is unrealistic for most consumers. Therefore, auto financing has become the primary means of purchasing a new car. Car leasing is also an option, though it can be more expensive in the end. Financing a new car can be exciting, but it can also be confusing. If you have never financed a car before, or have been out of the market for some time, here's a quick guide to getting the best loan possible.
You Have the Power – An informed consumer is a powerful consumer. By knowing as much as possible about the lending industry, you will have the power required to negotiate a better deal. Remember, when buying through a dealership, everything is negotiable, including your interest rate. Never accept a deal from an F&I officer without first attempting to negotiate.
Interest Rates – Most consumers believe that interest rates are determined by their credit rating and history. They are correct – in part. If you finance through an outside lender, then this is correct. However, financing through a dealership is something else, altogether. All dealerships will markup your interest rate, in order to make a profit. For instance, if you qualify for an 8% interest rate, do not be surprised to be offered a 12% interest rate. You don't know what the bank has told the dealership, so they are free to make a profit on the transaction. Yes, this is legal, though it is seemingly unethical.
Loan Term – The term of your loan applies to the length of the loan in months. The longer the loan term, the lower your monthly payments will be. However, you will also pay more in interest fees for a longer-term auto loan. Use larger down payments and shorter-term loans to save the most money when you finance your car.
Subprime Borrowers – If your credit score is below 600 or so, you will find fewer lenders willing to extend you credit. You will also be hit with higher interest rates. If you fall into this category, take the time to repair your credit before purchasing a new car. If you simply must have a new car now, shop around for the best deal on loans.
Dealer Financing – Financing your car through the dealership is extremely convenient. However, you can get a better deal on interest rates by applying through an alternative lender on your own. Check with local banks, online lenders and credit unions to find the best deal for your needs.
Your Down Payment – The amount of money that you put down at the time of purchase greatly affects the amount of money that you will need to finance. The larger your down payment is, the lower your monthly payments will be. Combine a large down payment with savvy lender shopping and you'll find a winning combination.
Your Credit Report – The lender will look at your credit report and score before extending you credit. Ensure that your report is free of credit bureau errors, as well as clean. Pay off outstanding creditors, pay your bills on time and make sure that your credit report is a spotless as possible in order to get the best loan terms.