Buying a car can be an exciting experience. But, you probably need a car loan to finance the purchase. Because you can get a car loan from a variety of sources, it’s important to take time to understand your options as you learn how to finance a car.
10 Tips To Get The Best Car Finance Deal
Whether you choose a bank, credit union, or an online lender to get financing, boost your chances of getting the best deal with these tips.
1. Get Pre-Approved
Leverage the relationship you already have with your bank or credit union.
The financial institution’s loan officer may offer you a special auto loan deal or another incentive since you’re already a loyal customer. Financing is usually more affordable when you go directly to your financial institution rather than indirectly through dealer financing channels. Many credit unions offer favorable loan terms, including lower interest rates and fewer loan restrictions, so consider finding a credit union in your area.
2. Be Cautious With Dealership Financing
Be aware that there are risks when you choose dealer financing.
Many times, dealers put pressure on you to use them and they often use tricky offers like low-percentage financing, which is typically made up in some other part of the deal. Pay careful attention to the interest rates and terms on their offer, as they may be stretching out the term to get you lower monthly payments, but you end up paying much more in interest overall.
Make sure you know exactly what you’re getting into by reading carefully and taking your time, even if you’re pressured to take action.
3. Know Your Credit Score
The best financing offers are typically reserved for consumers with a good credit score of 680 and above. Check your credit score for free once a year. Then, use your score to determine if you qualify for the best interest rates or should improve your score before you buy a car.
4. Save A Down Payment
To reduce the amount of money you need to finance, save as much money as possible for a down payment. A down payment of 10% to 20% could also qualify you for better loan rates. Plus, paying more upfront could help you avoid negative equity or owing more than the car is worth.
5. Trade-In Your Current Vehicle
Reduce your loan amount and save money when you trade in your current car. You can sell your car to the dealer or through a private channel. Always review online resources like Kelly Blue Book first and use the car’s condition, mileage, and year to determine your vehicle’s accurate value.
6. Pay Cash For Extras
Your new or used car purchase will include several extra fees, including sales tax and the document and registration fees. Use cash to pay for these extras to reduce your loan amount and overall interest payments.
7. Look Beyond The Monthly Payment
While a low monthly payment can be attractive, review the overall cost of the car loan. You could end up paying more in interest over the life of the loan in exchange for a lower monthly payment.
8. Choose The Shortest Repayment Term
A typical car loan lasts from three to six years. A shorter loan repayment period increases your monthly loan payment but reduces the amount of interest you will pay overall. You may also receive a lower interest rate when you choose a shorter repayment term.
Calculate the monthly payment and overall interest as you compare loan repayment terms and choose the right loan for your needs and budget.
9. Inspect The Car
Once you choose a vehicle you like and can afford, inspect it carefully. Depending on the source of your auto loan, you may be able to finance almost any car, but it should ideally be one that will last a long time. Only finalize the purchase after you’re sure the vehicle is reliable.
10. Review The Loan Agreement Carefully
Because a car loan is a complex legal agreement, carefully review the agreement before you sign it. Verify the loan amount, interest rate, and repayment length. Check for prepayment penalties, too. You may also want to confirm car usage restrictions like limited mileage clauses.
Now That You Know How To Finance A Car
To purchase your next vehicle, you can finance it through a dealer or other lender. The best finance option will meet your budget, ensure you get the best deal, and reduce stress as you buy a car that meets your transportation needs.
Get flexible loan terms, affordable fees, and a prompt decision when you use financing through a credit union like Atlantic Financial Federal Credit Union.