If you’ve decided to purchase a car and need a loan, it can get costly if you don’t take precaution and research your best options overall—including the purchase price!
At Prevent A Lemon (PAL®), we’re all about saving money. We hope some of these auto financing tips will put money back into your pockets 😀
Know the formula and consider the overall cost
Total Acquisition Cost (car sold amount, registrations, taxes, etc.)
- Cost of Loan (interest expense + fees)
= Total Purchase Cost (money out of your pocket)
Too many buyers have been swindled into costly interest expenses. A bad combination of high interest rates, long terms and little down payment can seriously damage your pockets. If a seller “gives you a deal” on the sale price, be careful they’re not hitting you on the financing. It’s important to look at the total acquisition cost and compare to the loan cost. It may end up impacting your buying decision.
Calculate different options
Put together different cost scenarios based on the term, interest rate and down payment, then compare to your planned budget. You may find that you can afford a little bit more upfront to help you save in the long run. NerdWallet has a great calculator that will help you quickly compare: http://bit.ly/AutoLoansAllCredit
Know your credit score and rates beforehand
Knowing your credit profile and your expected loan rates will make the financing negotiations smoother. There are great tools online that will help you learn and maintain your credit scores, such as Credit Karma. Check them out if you haven’t already, they’re free!
You’ll also want to shop around online beforehand, so you can understand what rates and terms to expect. NerdWallet outlines different loan companies you can review:
Find comparable rates and use them to your advantage when negotiating with the seller or other auto lenders.
Put more money down and reduce the term as much as possible
Loan companies hope you put less money down, so they make more off the greater loan you take. You need to maximize your down payment based on your total budget. The lower the amount owed, the smaller the interest expense each month.
Similarly, keeping the term down is also key. The less time contracted to the loan, the better. The longer the car payment means more months paying interest, and more time with less money in your pockets.
Pay as much cash for taxes and fees as you can
Watch for auto lenders to roll their taxes and fees into the loan. This will end up costing you more in the long run as they’ll be applying interest against it. If you can afford to pay the amount in cash, without taking away from your down deposit, then you’ll be better off. Even if you can put a partial amount, it is better than nothing.