A lot of people usually spend days researching just to ensure they get the lowest price they can get on a car, but they often ignore to look around for the best auto loan.
Every car shopper that doesn’t have the financial capacity will always be vulnerable by accepting whatever deal or terms the dealer offer which might have a significantly higher interest rate than others. More so, the dealer usually mark up the interest rate on such loan beyond what the car shopper can qualify for, thereby, making the buyer pay hundreds of dollars more during the lifespan of the loan.
Listed below are few tips on what you should look out for when looking to get a car loan
Ensure to always keep an eye on the cost
Whenever you’re doing a comparison for an auto loan, what you need to focus more on is the APR (Annual percentage rate). A lower rate can help you save significantly more than you can imagine. For instance, a 3 year $10,000 car loan with an APR of 5% will help you save about $500 in cash compared to a 7% APR rate of the same loan.
Another major consideration you need to have is the length of the loan; this will affect your total financial cost as well as your monthly payments. Having a shorter loan repayment time means you will pay a higher monthly fee but a lower overall payment. You should try to keep the length as short as you can. A five-year loan will definitely cost more than a three-year loan of the same amount.
A long-term loan will also mean that it will take longer for you to start to build equity in the vehicle. For instance a 60 months long loan will cost you about 18 months of payment or more before the car is valued more than you owe on it. The simple meaning of this is that, if you want to sell or trade in the car, the price that you will receive won’t be enough to settle what you owe on the car – this is referred to as being upside down. The same thing applies if the car is damaged, destroyed or stolen; the insurance payment you’ll get won’t be enough to settle the rest of your loan.
A shorter loan will certainly reduce the duration of time you can be under water. For instance, you can create thousands of dollars of equity n the vehicle with a 3 year loan just after the first year. A significant down payment will save you from being upside down. It is advisable that you possess a down payment or trade-in of about 15% minimum of the total cost when getting your new car.
Auto Financing For Smart People – Tips To Save Money On Your Car Loan
You can easily save more money on your car loan by leveraging competing loan offers and knowing your credit score. Ensure you have about 15% of the total cost upfront, make the term as short as you can and DO NOT break the bank by buying more than what you can afford.
Do not make the common mistake that people often make by leaving out the cost of auto financing from the total balance.
5 Auto financing tips
Do not make the mistake of thinking that your car is an investment; it is not. Cars devalue very quickly; this is enough reason not to pay any interest on a car loan. In most cases, the value of the car drops and it depreciates faster than the rate at which you’re paying the loan. This leaves you underwater or upside down (you owe more on your loan than your car is worth)
Regardless of the hurdles, many of us need a car for various reasons, and we don’t have enough money to buy a reliable one. The only feasible option here would be a car loan, but you need to understand the differences between using an auto loan to buy a car you cannot afford and using it wisely.
The fact that you have a good income and credit to get an auto loan for a Chrysler doesn’t imply you should buy it. What you should spend and what the dealers say you can afford are two separate and different things.
Anytime you’re getting a loan for a car; you should always consider the total cost and the monthly payment. This is a good recommendation for you:
1- You need to be aware of your credit score before heading for the dealers
The best and most appropriate time to track and check your credit score should be before you get a car loan. You can always get a car loan even with bad credit unlike the credit card or mortgages; you will just have to pay a lot more. This is because it is easier for banks or any financial institution to repossess a car if you refuse to pay.
There are free tools like Credit Karma that will help you know and understand your credit score. As soon as you’re aware of your credit, you can determine if you qualify for better car loan rates.
Most dealers usually advertise very attractive interest rates on some new cars. This rate could be as low as 2.9%, 1.9% and surprisingly 0% sometimes but do n’t be surprised to find out that these awesome rates are applicable only to people with the very best credit – these scores could range from 750 and above.
Anybody with a score below 700 will still get good interest rates but will not qualify for the very best promotional offers. People with scores under 650 will get offers with car loan rate ranging from 10% or more.
If you have a lower score, it is important for you to look around to ensure you’re getting the best rate applicable to your credit score. You will definitely have to pay more compared to others with good credit scores, but you don’t necessarily have to pay the first rate you’re offered.
2- If you’re certain that your credit score isn’t good, you should get a financial quotation before heading for dealers.
Don’t you have a good credit score? Why not try online lenders? It is as easy as completing their credit application, and you will be offered the maximum amount you can spend on the car as well as your interest rate. The beauty of this is that you don’t necessarily need to use the loan if you get a better deal from the dealer. This gives you the confidence to approach a dealer knowing that you will definitely beat an interest rate.
One of the best loan matching services out there is Even Financial. They often provide the lowest car loan depending on your situation and needs.
Sometimes, credit unions and local banks usually offer very competitive interest rates on used and new cars, and you can qualify for this even with an average credit. You will as well be able to utilize the pre-arranged financing to bargain with dealer’s finance and insurance manager to get a lower interest rate.
3- Ensure the term is as short as it can possibly be
If you have a short loan term, you will pay lower interest rates and higher monthly fee, and that is the best option for you.
Whenever you approach a dealer to buy a car, their car salesperson will obviously negotiate with you based on the monthly payment instead of the total cost of the car. Doing so will enable the salesperson to give you lower payments thereby, extending the term of the loan instead of reducing the overall cost of the car. You can get such a ridiculously low monthly payment but remember that you will pay more interest if you take longer to pay your loan. Also, financial institutions and banks charge higher rates on interest for longer loans which will further increase your overall payment.
It is very tempting to extend a car loan to 4 or more years just because you will be very comfortable with your monthly payments but remember that you will also pay more in interest and obviously you will be upside down on the car for almost the entire lifespan of the loan.
4- Be willing to pay between 15% and 20% upfront
If you decided to go for a shorter term loan, you could easily avoid an upside-down situation by having some money for upfront payment. This doesn’t require rocket science, but a lot of dealers do not mandate buyers who have good credits to make any upfront payment.
As tempting as driving a new car without making any upfront payment is, it is very dangerous and risky. If a situation arises that warrants you to sell the car, you will not be able to do so if the loan you owe is more than the worth of the car. A reasonable upfront payment helps you avoid such a scenario.
5- Pay your fees, taxes, and extras with cash
Ensure you finance every miscellaneous expensive involved in the purchase of your car: registration fee, sales taxes, document fees, extended warranties and any other extras you purchase with cash.
Most times, dealers always push these fees into your financing. Doing this will definitely have you upside down on your loan for a while because you will be increasing your overall loan cost instead of the value of the car for which the loan is being secured.
4 Car Dealer Tricks You Need to Know Before Buying a Car
1- Always Negotiating on Monthly Payments
Watch out whenever the salesperson begins to talk on the monthly payments. They are so smart that they want you to be focused mostly on low monthly payments which enables them to increase other variables including the loan length and interest. This helps the dealer increase their profit — while you spend hundreds or even thousands more on the overall cost of the car.
Most dealers will give you their so-called four-square chart, and this is seriously confusing. A former car salesman revealed how that shell game is being played: They will put you on the defensive and worn you down very quickly with tricky math. Meanwhile, the salesperson will appear to you as your savior helping you knock down prices.
2- They Tell You Your Credit Really Sucks
If you are not aware of your credit score, it is very easy for the dealers to rip you off by saying you don’t qualify for a good interest rate. In such a situation, if the bank offers you a 5% loan; the dealer might give you a 7% loan claiming your credit score is low.
Counter Strategy: Check your credit report for free and be aware of your credit score before heading to any dealer. More so, you need to look around for financing, try getting it if you can on your own. Regardless of your score, you will be aware if the dealer is trying any smart move on you.
3- Baiting and Switching
Good salespeople can loosen you with humor and pretend to be your guardian angel in your quest against the unseen manager in the back room. They might as well give you a great discount or trade-in offer on the overall price.
Certainly, all the inflated trades and lowball offers given earlier will be squashed by the faceless manager later on. The secrets revealed by the one-time car salesman exposes how many numbers that have been previously agreed on will be forgotten or lost by the dealers.
4- Pushing Fees and Add-Ons
Finally, you should always watch out for extras that are being added to your financing or purchase. Dealers usually inflate overall car payment cost by “packing” extras such as an extended warranty, they might claim it’s “only $40” a month. That extra $40 will accumulate to $2,400 for a 60-month loan.
Counter Strategy: You need to be aware of the add-ons that are truly necessary, and then check your sell sheets and financing carefully. There are some things you should not be charged for, such as a hidden loan acquisition fee as well as any other fees including doc preparation or “customer service” fee.
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