Calendar Recipe Box Shopping List Address Book
      
 
 

Financing a New Car

Financing a New Car


If you have your heart set on a shiny, brand new car, arrange the best financing before you even take a test drive!


By Gary Foreman

  Print: Full Page
Text Only
  Email: Article
   Find: More Articles


Unless you pay cash for a car, finding the best auto loan could reduce the cost of the car by up to five percent.

Why Shop for Financing First?
Start looking for a loan before you set foot in a car dealership. The local credit union or bank is likely to have better financing.

This depends, of course, on the car. In these days of high gas prices and a lot of cars in inventory, the car dealer may have a good financing program, too.

It's wise to get a copy of your credit report before doing anything else. If there are errors, you can correct them.

There's another reason to shop for a loan before the car. The signed deal to buy the car probably includes a "subject to financing" clause, which means that you haven't really bought the car until you arrange financing.

Start at the Bank
When you go to the bank, tell them how much you'd like to spend. They'll check your credit, propose an interest rate, and tell you what your payments would be. Have the interest quoted to you as an Annual Percentage Rate (APR) so that you can compare offers.

Write out a list of questions for the loan officer. A loan agreement isn't a simple document. Some seemingly minor clauses can be expensive later. For instance, find out what happens if you want to pay the loan off early.

Time to Negotiate
Now, it's time to negotiate. Most newspapers list the rates charged for auto loans by different banks and credit unions. Ask the bank if they'll match the lowest rate on the list.

Don't concentrate on getting the cheapest monthly payment. A lower payment could hide the fact that you're actually paying more for the loan. Your goal should be to get the lowest APR.

On a 48-month, $25,000 loan, a two percent difference in APR will cost an extra $24 each month. That's a difference of $1,142 over four years. And, depending on your credit history, rates can vary by three or even four percent. That's a lot of money to give away.

Make sure that you know how many payments you'll make. Remember that a loan can cost more even if the monthly payments are the same. All the lender needs to do is to make the loan last longer.

Avoid balloon payments, even if offered. They're a disaster waiting to happen, particularly in today's economic climate. Sure they'll lower your payments now. But if you can't afford a higher payment now, where will you get the money to make the bigger balloon payment later?

Credit insurance is not required by federal law, plus it's expensive. Negotiate with the lender. Some may require it. But, if your credit history is good you can always look for a lender that's more flexible.

Don't forget to check out any credit unions that are available to you. Often their rates are better than banks.

When the finance papers come back to you, read them before signing. It's not uncommon for them to change the interest rate and conveniently forget to mention that fact to you!

Finally, Visit the Dealer
Once you've found good financing, it's time to find a car you like and negotiate a price with the dealer. Your advance work will put the dealer in the position of having to match the well-shopped financing that you've already arranged.

Generally, dealers don't actually loan you the money to buy your car. They sell the loan for a bank or finance company. They're paid based on how high the interest rate is. The more you pay, the more they make.

Perhaps they'll have something better. If so, great. If not, you won't find yourself stuck with overpriced dealer financing.


Gary Foreman is a former certified financial planner who currently edits The Dollar Stretcher Web site www.stretcher.com/save.html

 



Enter your email address to receive delicious, family-friendly recipes, exciting promotions, helpful articles and more delivered right to your mailbox. What could be better?





HyperLink


7 Ways to Get Better Mileage
If the prices at the pump make you fume, follow our tips for getting the most for the money.
View Full Article

Buying a New Stove?
If you like to cook even little, nothing is more satisfying than a new range. Here are tips to help you choose the right one !
View Full Article

Finding a Financial Advisor
With tax time around the corner, now is the time to think about getting your finances in order.
View Full Article

Organizing Household Property Records
Taking careful inventory of your valuable possessions will give you peace of mind-and save you a lot of trouble in the event of a catastrophe or life change.
View Full Article

Should You Pay Yourself First?
This method for saving money works for a lot of families. It may work for yours.
View Full Article




 
  








 
Simply fill out the required fields to begin enjoying the benefits of FamilyTime.com – it’s fast and it’s free.
* required



 
 
Concerned about privacy? Rest assured, we never sell or share your personal information.
See our Privacy Policy.
//