A BLUE ONE

THE DO’S AND DON’TS OF FINANCING A CAR I WANT

WRITER: BONNIE CONRAD

If you are in the market for a new car, you are probably in the market for a car loan as well. With the average cost of a new car well into the five figures and even a reliable used car selling for thousands of dollars, few people can afford to pay cash for their new rides. Whether you are buying a brand new car or shopping for a great used one, the financing can be just as important as the purchase itself. Knowing the do’s and don’ts of automotive financing can help you get the best deal possible and ensure car payments are affordable and easy to make. Here are some to keep in mind as you shop around:

Do Check Your Credit Score

Whenever you apply for a loan, the lender will take a close look at your credit score. If you do not know where you stand, you could end up paying more in interest than you should. Take the time to pull a copy of your credit history and get your numerical credit score before you start shopping for a vehicle. If you spot an error on the report, contact the credit bureau right away to have it corrected. This simple step could save you a bundle on interest costs.

Do Shop Around For The Best Rate

Do not assume interest rates on car loans are all the same. Every bank and car dealer uses a different set of criteria to set rates, and shopping around could save you a lot of money over the life of the loan.

You can start by checking the rates for car loans at the bank where you have your checking and savings account. Once you have that rate, you can compare it with what you can get elsewhere. If you like, you can also check rates at the local car dealer, although banks and credit unions often have better rates and more favorable terms.

Do Use A Payment Calculator

There are a ton of payment calculators on the Internet, so there is no reason not to use one. Just open up your favorite search engine and look for “car loan calculator” to find one. Once the calculator is open, all you need to do is plug in the expected purchase price of the vehicle, the anticipated interest rate and the length of the loan. The payment calculator may not be exact to the penny, but it does give you a good idea of what you will be spending. Armed with that information, you can start shopping for the car, truck or SUV of your dreams.

Do Keep Your Loan As Short As Possible

It may be tempting to go for a five- or even a sixyear car loan, especially if you have your eyes on an expensive luxury car. Even so, it is best to keep your car loan as short as possible for a number of reasons.

For one thing, a lengthy car loan increases the odds you will end up owing more than your car is worth. That can be risky, especially if you get into an accident or need to trade in your car before you planned. A longer car loan also means paying more interest, and those extra payments can really add up.

DON’T SHOP BASED ON THE MONTHLY PAYMENT ALONE

Many car shoppers make the mistake of basing their decision on the monthly payment and not the purchase price of the car. That is a big mistake, since a shady dealer could adjust the price of the loan to fit the payment you have in mind.

Always negotiate the purchase price of the car first, before you even talk about financing. Once you have the price of the vehicle ironed out, you can discuss your loan needs and see what the dealer has to offer. Be sure to compare those financing options to what you can get on your own. You may find you can get a lower payment and a better interest rate by financing the vehicle on your own.

DON’T BUY MORE CAR THAN YOU CAN AFFORD

One of the biggest mistakes you can make is buying more car than you can afford. Buying too much car for your budget may cause you to extend the length of the loan or fail to get the best bargain possible.

Take a good look at your budget and make your choice accordingly. If you crave a luxury car but your budget does not include a new one, shop around for a quality used vehicle instead. There are always ways to make your budget work, so be creative and shop with your current financial situation in mind.

Chances are you will have to take out a loan to buy your next car, but that does not mean you have to resign yourself to high car payments. With a little bit of foresight, you can avoid common problems and get a great car for an affordable monthly payment.