Getting financing for a new car can seem like a labyrinth of terminology and details. However, it doesn’t have to be so difficult. If you know what to expect beforehand, auto financing doesn’t have to be stressful or scary. The primary benefit of auto financing is that it allows you to drive home a new car sooner than saving up cash for one upfront or waiting for an inheritance from grandma. Auto loan providers are generally willing to work with almost any credit profile, so anyone can get financing for an automobile. The trick is knowing how to get a good auto loan with favorable terms and conditions that won’t result in financial problems down the road. With the tips below, getting financed for an automobile should be much easier.
Know what you can afford to finance before going to the dealership.
Auto financing is commonly offered by dealerships, but it’s important to know how much you can afford as a down payment before going to the auto lot. Auto lenders will look at your income and credit score to determine the amount you can get loaned against. This amount is generally determined by a percentage of what you earn, your credit score, and the current interest rate market. The salesperson at the dealership will try to get you to finance as much as possible. However, this isn’t always in your best interest. For example, if you can only afford $10,000 and the dealership offers you $15,000, you may end up with a car you can’t afford.
Be aware of predatory lending practices.
Unfortunately, not all auto lenders are ethical and will treat you with the respect and dignity you deserve. Unfortunately, some lenders prey on unsuspecting and financially vulnerable consumers with unfair loan terms and conditions. Auto loan scams are not just a problem at shady and unlicensed dealerships but also through legitimate lenders in the industry too. One example of a predatory auto loan practice is the use of equity stripping, or putting a lien on an asset (e.g. a house) other than the vehicle you’re buying. This kind of loan is often referred to as a “balloon loan,” which means the balance of the loan has to be paid back in a lump sum at the end of the term. If you can’t afford to repay the loan, the lender may repossess your house or other collateral and sell it off to cover the debt.
Find out how long you’ll be financing for and what rate you’re getting.
One of the most important factors in determining the overall cost of your auto loan is the interest rate. The higher the rate, the more you’ll have to pay back. The longer the term of your loan, the more it will cost you in interest. If you can, try to get a short-term loan. Ideally, you want to be paying off your car loan within 5-6 years. When you go to the dealership to apply for a loan, make sure you know how much the interest rate is. You’ll also want to know how long you’re financing so you’re not stuck making payments for 10+ years.
Check your credit score before applying.
You can check your credit score before applying for financing to make sure there’s nothing that could jeopardize the approval process. If your score isn’t satisfactory, you can take steps to improve it before applying for financing. Credit cards, utility bills, and other types of loans you’ve had in the recent past are reported to credit bureaus and affect your score.
Don’t forget about maintenance and repairs.
You don’t want to fall behind on your car payments. However, you also don’t want to put a lot of cash down upfront and finance a car that you won’t be able to afford to repair. When choosing a car to finance, you want to consider its maintenance and repair costs. Some cars are generally more expensive to maintain and repair than others. Additionally, luxury cars are obviously more expensive than most vehicles on the road. Don’t get stuck with a $350 oil change on top of a less-than-ideal auto loan.
Negotiate on price before financing is approved.
This one is pretty self-explanatory. Before you sign on the dotted line, you should absolutely try to negotiate a lower price before financing is approved. This is particularly true if you’re financing a car through your bank. For auto dealerships, you can negotiate on price before financing is approved by offering a larger down payment and/or extending the time to pay off the car.
Financing a car can be daunting and confusing. However, it doesn’t have to be that way if you know what to expect and how to best navigate auto financing. With these tips, you can make the auto financing process easier and more organized. You can use these tips to make sure you get a good deal on the car you want and that you get financing that is fair and favorable to you.