So you’re buying a car. You don’t have cash up front and you’re going to need to get a car loan. Financing a car purchase can sometimes be overwhelming and stressful, but it doesn’t have to be. Here are some tips that will help make the process easier and get you the best car loan.
Check Your Credit
Before you even start the car-buying process you should check you credit and take steps to fix it if it’s poor. Your credit rating will determine what kind of interest rate you can get on a car loan. If you have good credit, you will be able to get a lower interest rate. If you have bad credit, you might have to pay more. If you find that you have poor credit, try to settle old bills and pay off unpaid balances. If you have no credit, you can sign up for a credit card, use it and pay off the balance each month.
Save Some Money
If you are planning ahead, try to save up as much money as you can for a down payment. This is the initial payment you make upfront when taking out a car loan and is usually required by lenders. The more money you can put down, the more you can reduce the total amount of your loan.
Determine Your Budget
Next, decide how much you want to pay for a car. You should pick your ideal amount as well as the highest amount you’re willing to go. Then decide how much you can afford to spend on monthly payments. Don’t forget to take into account auto insurance payments, money spent on gas and money spent on car maintenance. Now here’s the hardest part: stick to your budget! It’s easy to get caught up in the excitement at a dealership when you’re looking at a car that may be out of your price range. Remember what you decided you can afford and stick to it.
Go For The Short-Term Loan
After you determine your budget, determine your time-frame. When do you want to have your loan paid off? Ideally, you’ll want to pay it off as soon as you can, but if you want to make lower monthly payments, you can increase the term of your lease. Keep in mind that while you may pay less each month with a longer-termed lease, you end up paying more in the long run because you will make more interest rate payments. If you decide to increase the length of your lease in order to reduce your monthly payments, add up your monthly costs plus interest and make sure you’re comfortable paying that total amount for a car. Bankrate.com, Edmunds.com and other websites have auto loan calculators available. If possible, try to get a loan for the shortest amount of time that you can afford. The sooner you can pay off your loan, the better and the cheaper.
Know Your Options
Once you know how much and how long, find out how much it’s going to cost to borrow. This is the interest rate—the amount of money the lender charges you monthly for letting you borrow their money. While dealerships offer auto loans, they aren’t the only ones. There are many other lenders also available to you. Check with your current banking institution to see if they have auto loans available and check with other banks. You can also check with a local credit union.
Now that you know your options, see what kind of rates they can offer you. You can usually find the rates that banking institutions offer on their websites or you can call and ask for a quote. Try to get at least three quotes. Make sure you read the fine print and understand the terms of the loan. You can use Bankrate.com’s car loan rate comparison calculator to help compare financing between banks and credit unions to help find the better choice for you.
Once you get your quotes, you can try to negotiate with other lenders. Tell them what you’ve been offered and ask if they can beat that. Once you’ve done that with all of your lending options, go with the best offer you get.
Know What You’re Getting
Read the fine print and ask questions. One of the most important things to find out before you decide on a loan is how flexible it is. You’re agreeing to making payments for the next few years and you never know what could happen. Find out if there are any penalties for making extra payments or even paying off the loan entirely.
Congratulations, You’re Almost A Car Owner
Buying a car can be a rewarding experience if you do your research and find the best deal. It can be a lot of work, but the extra money in your pocket that you save will make it worth it. But once you’ve finalized your auto loan and you get behind the wheel, the work still isn’t quite over. You still have to make sure to make your loan payments on time. Doing so will avoid any penalties and will keep your credit score in good condition.
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