5 TIPS FOR FINANCING YOUR NEXT CAR
Few car buyers have the cash on hand to shell out the full price of a new or used car up front. If you can’t pay for your car on the spot, you’ll probably need to cover its cost over time through financing. When you finance your car, you get a loan to purchase the car up front and then pay it off over time–with interest.
The three most important factors to think about when you’re considering financing a car through a loan are: the amount of money you borrow to buy the car, the interest rate you pay, and the amount of time you’re given to pay off your loan with interest. Financing a car can be confusing and overwhelming. It’s easy to get scammed into a bad car loan that forces you to pay way more than your car is actually worth by the time you actually pay it off. Fortunately, there are several ways to secure a smarter loan and a financing plan that will help you pay off your new car as quickly and inexpensively as possible.
1. DON’T BE FOOLED BY LOWER MONTHLY PAYMENTS
Choosing a financing plan attached to the lowest monthly payments can seem like the best way to fit financing a car into your budget. It’s tempting to accept the financing plan that offers you the lowest monthly payment rate, but only thinking about monthly payments is actually a very narrow-minded way to consider a car loan. The term of your loan is just as important as the cost of your monthly payments when it comes to the overall affordability of your car financing plan.
The longer it takes you to pay off your car, the more money you’ll end up spending on loan payments. For particularly long loan terms, you will likely end up paying significantly more than your car is worth and you might even be stuck paying off the loan on your old car after you’re ready for a new one. If it’s possible for you to scrape slightly more money out of your monthly budget to keep up with higher monthly payments, the amount of money you spend on paying off your car by the end of your loan term will be significantly lower.
2. CHECK YOUR CREDIT SCORE
It’s important to head to your bank or car dealership equipped with as much knowledge as possible in order to score the lowest possible interest rates and shortest loan term.
Take some time to check your credit report and score and make sure you really understand it before you go ask for a car loan. Tracking your credit score will help you get a better understanding of what type of interest rate you should reasonably expect and can help minimize your risk of agreeing to a worse financing plan than you deserve.
3. SHOP AROUND WITHOUT FEAR
Many car buyers are afraid to check out loan offers at multiple banks or dealerships because they’re concerned about how shopping around might damage their credit score.
In reality, shopping around for a car loan will only lower your credit score very minimally–think a few points or less–or even not at al in many cases. In the long run, taking your time to secure the best car loan will have a more significant, positive effect on your finances than the slight, temporary hit your credit score might take.
4. DON’T ACCEPT A LOAN JUST BECAUSE YOU GET ONE
If you have a poor credit rating, you might be tempted to snap up the first loan offer you get. When it comes to financing a car, though, getting offered a loan is not as rare as you might expect. For other major purchases–like buying a house–it can be very difficult to get any type of loan if your credit score is weak.
Your chances of getting a loan on a car with a less-than-ideal credit rating are significantly higher, primarily because it is much easier for a bank to repossess a car than a house if you end up defaulting on your loan. Don’t accept the first loan you’re offered, even if you have a poor credit score. You might be able to secure a better financing plan with a shorter term and lower interest rates, especially if you’re willing and able to provide an initial down payment of 20% or more.
5. ONLY FINANCE THE FLAT COST OF YOUR CAR
If you’ve ever bought a car before, you probably already know that cars usually end up costing more than their initially advertised price. Fees, taxes, and upgrades can significantly rack up the original price of a car.
Never include these additional fees in your car’s financing plan; you’ll end up paying more in interest even though the value of your car won’t increase. If you don’t have the money to pay for these extra costs up front, consider either postponing your car purchase or forfeiting any unnecessary add-on amenities. For further assistance, get in touch with one of our reps.