One of the biggest mistakes people make when buying a new car is forgetting to include the total cost of auto financing into the cost of the car. Here are some of our best expert-approved and money-saving tips.
Check Your Credit Score First
Check, track, and understand your credit score. Once you know your credit score, you can determine if you can qualify for the best car loan rates. The lower your credit score, the more you need to hunt down the best deals.
If Your Credit Is Less than Perfect, Get Quotes Before You Visit a Dealership
If you don’t have excellent credit, try online lenders. You complete a credit application to figure out your interest rate and the max amount you can spend on the car. Besides the fact that you aren’t obligated to use this loan, you can also use it as a bargaining chip to negotiate with the dealership’s finance and insurance manager and score an even lower interest rate.
Keep the Loan Term Short
Shorter loan terms come with higher monthly payments but lower rates. This is precisely what you should aim to have. Yet, smart salespeople show you lower and lower payments by extending the term of your loan. This means paying much more in interest. On the other hand, banks may charge higher interest rates for longer loans, further increasing your cost of credit.
Put 20% Down
In addition to opting for a short term, avoid getting into a situation in which you owe the lender more money than what the car is worth by making a big down payment. A larger down payment ensures you can sell your car hassle-free if you need to.
Pay for Taxes, Fees, and “extras” with Cash
Do not finance miscellaneous expenses like sales tax, registration fees, documentation fees, and extended warranties. Doing so will only increase your loan amount but not the value of the car securing the loan.
Unless you have a low-APR loan offer in hand, the best way to buy a car is with cash. If you need to get an auto loan, it’s important that you be as practical as possible.