Auto Financing Tips

If you’re looking at securing auto financing to help upgrade your ride, you don’t want to go into the process ill-informed. One of the biggest mistakes shoppers make is not considering how auto financing impacts the overall purchase.

While it’s easy to get caught up only negotiating the price of the car, don’t lose focus on getting agreeable terms for your loan.

Here are some of the top tips to ensure you get the auto financing that works for you:

Do Your Homework Ahead of Time

Part of securing auto financing is doing a little bit of pre-work. Having some upfront knowledge will ensure you aren’t blindsided when it comes time to sign all of the paperwork. While you want to trust that your local auto dealer does everything on the up and up, it never hurts to be ready.

Start by checking on your credit score. Just because a dealer advertises a low financing rate doesn’t mean it applies to everyone. Most incentives require at least a 750 credit score, but this can vary. You can still get a loan with a lower score, but you might incur a larger interest rate.

You can get a pretty good glimpse of your score from free sites like Credit Karma. You can also request an official copy of your credit score from each of the big reporting agencies (Equifax, Experian, and TransUnion) once per year at no cost.

It’s also worth doing a little loan shopping to see what kinds of deals are out there. Dealers have their own in-house financing that can be extremely competitive, but you might also get a good deal from a local credit union or bank. If nothing else, you want to be able to compare options in order to make your best decision.

Put More Down

Not everyone has the budget to put a large down payment for their new car, but doing so can make a huge impact on your overall loan. If you can put 20% down on the car, you’ll have a much lower principal (the amount you have to borrow). A lower principal means paying less interest over the life of the loan. Deals that involve low or no down payments are great ways for the dealership to make more off of the interest because of the higher principal.

Another thing to consider is paying for extra fees with cash. Part of your car purchase will include things like sales tax, dealer fees, and other extras. While you can negotiate some of these fees down, others are just the cost of buying a car.

Make sure you get an itemized invoice for any and all expenses on the car. This not only keeps the dealer from hiding fees in the final price, but it also gives you a chance to avoid things you don’t want to pay for. When possible, pay these extra fees with cash to keep your principal down.

New Cars Are Depreciating Assets

Unless you’re buying a collector’s vehicle, your new car purchase is not an investment. New vehicles experience high rates of depreciation, and lose close to 50% of their value within the first five years they’re on the road. Some cars, like luxury or sports vehicles, will depreciate even faster.

While having a low down payment and low monthly payment seems nice, taking longer to pay down your loan puts you at risk of going underwater/upside down (owing more on the loan than the car is worth). When this happens, getting into an accident or selling the car means you could lose a ton of money.

The right auto financing option is a great tool that allows you to bring home your dream car long before you save the cash to buy it. At the same time, you want to pay off your loan as soon as you can. This not only allows you to have equity in the vehicle but helps keep you from paying more in interest.

Just keep in mind that auto financing is meant to help you purchase a car that you can afford. It’s not meant to get you behind the wheel of something that’s out of your price range.