Make Your First Car Loan A Great Experience!!
I’m sure you have heard many horror stories about buying a car or getting a car loan. Better yet, if this is your first car loan, it can either be the best or worst experience that you will ever go through. Unlike a home purchase, cars depreciate in value, so getting a great deal and an even better loan it important.
First Thing First
Before even thinking about the loan process, make sure that you are getting a great deal on the car that you want. Make sure the price of the car is fair, and there are not any “extras” that you will not really use. Get a final price on the car before you begin to talk about the financing process.
Shop Around For Your Loan
Many car dealerships will offer to find you a loan. They will claim that they have found you a great deal from a bank. What is not known by you is that the interest rate on the loan could reflect a percentage that goes to the dealership. For example, a dealer might find you a loan through a bank that will charge you 6% interest, but the dealership might quote you a 7% interest rate and pocket the extra 1%.
The best thing for you is to try to find the car loan on your own. Local banks will give better interest rates and credit unions usually give you the best rates. Credit Unions also have several other advantages and options for your loan package. For one, they may offer an extended warranty for a few extra dollars above your monthly payment. Also, if your loan account is in good standing, they will allow you to skip a payment around the end of each calendar year, just in time for the holidays.
Down Payments Matter
Putting 10-20% down on your loan can give you several advantages. First, it could seal the deal with a local bank, and they would better be able to finance your car and at a better interest rate. Second, this is cash money for the dealership and may entice them to look around harder to get you approved for a better loan.
Do The Math
The total sum of your loan payment with the interest factored in should equal the final price of the car. I once had a final price of $16,250 for a new car. However, when all payments were added up for the duration of 60 months, the total price ended up close to $21,000. Some items were necessary such as gap insurance, but other items were added in at the last moment.
Never Shop For A Payment
The worst thing you can do is tell the salesperson that you can afford a certain payment. You will end up with a more expensive car for a longer duration just to match your payment. Instead, as previously mentioned, shop for the price of the car rather than a car payment. A good rule of thumb is to allow yourself a payment range, but don’t tell the salesperson.