The reality is that most Americans don't and are forced to obtain an auto loan from a bank or other lending institution. When shopping for a car loan, use the following tips to help you get the best deal on your loan and on the total price you will pay for your car.
Know Your Options
Many consumers make the mistake of assuming that the dealership must provide the financing for the purchase, and this is simply not true. Before you start shopping for a car, visit your bank or credit union to complete the pre-approval process. This process tells you how much money you can borrow and gives you an idea of what price range you should be looking in when buying a new car. Interest rates from banks and credit unions are often lower than dealerships, although you should always explore all your options when loan shopping.
Know Your Credit Score
Before you start applying for a car loan, obtain a copy of your credit report and determine what your credit score is. This number gives the lender an idea of how dependable you are and how likely you are to pay back the money you are borrowing. This number also affects the amount of money you are able to borrow and the interest rate on your loan. Know your credit score before you start the loan process to ensure that there are no mistakes and that you are getting the best deal possible.
Know Your Costs
When buying a car from a dealership, make sure the total cost is broken down into three different sections:
The price of the car
The financing terms if you borrow through the dealer
The trade-in value on your current car
With these numbers, you can more clearly see exactly what you are paying for and what is credited toward your purchase. You should know exactly where each penny is going when taking out a loan to pay for a car.
Know The Penalties
Some loans have a fine if you choose to pay the loan off early, and most will charge you a fee if your payment is late. Before picking a loan, ask about any fees or penalties that can be incurred over the life of the loan. Avoid loans with early pay off fees or high late payment fees.
Borrowing money is a necessary evil for most consumers who are hoping to buy a car. If you come to the process armed with the right information, you can ensure that you spend less money on your car and pay less to your loan over the total life of the loan.