The process of financing a car can seem confusing if you’re relatively new to it. Fortunately, you don’t have to be an expert to find a good deal that is financially sound. According to consumer information from the Federal Trade Commission, prices average more than $31,000 for a new vehicle and $17,000 for a used vehicle from a dealership. This makes financing a real consideration for many car buyers. Before making a purchase, here are 3 things to know about auto financing.
Determine How Much You Can Afford
Before financing a vehicle, make a thorough assessment of your financial situation. Do this to make sure you have enough to cover monthly expenses and have enough money set aside in case of emergencies, especially car-related emergencies. Know that the total amount you will pay for a vehicle depends on several factors, including the length of the credit contract, the negotiated price for the vehicle, and the Annual Percentage Rate (APR), which may be negotiable as well. Taking on additional debt is only worth considering when you are spending less than you are taking home. Buying a car is something that should be done only when you can afford to take on a new obligation. Consider the monthly payments but do not negotiate them. As shared in a Bankrate feature, one of the most common mistakes people make when it comes to car financing is negotiating the monthly payment rather than the purchase price. This is a trap and may lead you to forfeit your capacity to negotiate for a lower purchase price. Don’t get turned into a monthly payment buyer.
How Your Credit Effects Financing
Along with your income, your credit determines whether or not you will be approved for a loan, according to Peoples Credit Inc. As you may know, your credit is your borrowing history and your credit score gives a general indication of whether you will pay back loans on time. A good credit score can not only increase your likelihood of being approved, it will also get you a lower interest rate, meaning you’ll pay less for your vehicle in terms of total interest costs and monthly payments. Before you even visit a dealership or apply for auto loans you should review your credit reports. As a US consumer you are entitled to a free credit report under federal law. Use this right and make sure that your credit looks as good as it possibly can. Be sure to review your report carefully and fix any errors that can potentially drag down your score.
When you buy a car, sometimes a lender may ask about life and disability insurance. This isn’t an act of kindness, but a way to sell additional insurance with your loan. While credit insurance does help to cover your auto loan payments, it’s rarely a sound idea to get credit insurance with your lender. Evaluate the existing policies that you have as an individual or that you get through your employer. It’s wise to know how you and your family will be protected if something happens. If you feel the need for coverage, compare offers from several different sources and focus on protecting yourself and your loved ones.
The complete process of shopping requires good decision making and value. The financing aspect has its own process that requires some valuable knowledge and understanding. Your options are direct lending (from a bank, finance company, or credit union) and dealership financing. Do your homework and weigh your options, plus keep the three tips we’ve covered in mind. Get the best deal possible when you finance and make your purchase.