Another option for financing your car

Looking for a new or even used car can be initially exciting. But soon after you’ve found the vehicle you want comes the negotiations — and the headaches.

This often means getting financing through the dealer. Car dealers have an incentive to offer financing to as many people as possible in order to increase sales. But the dealer’s financing options might not always be your best bet.

Many used-car dealers, for instance, make the bulk of their profits from financing the sale of their cars through high-interest loans. Believe it or not, many make more money from the loans than from the sale of the actual vehicles. So-called “zero-percent interest” loans served up by new-car dealers aren’t really loaning you money for free, either. Zero- or low-interest loans will generally require you to pay the full sticker price for the car, without the discounts or incentives other buyers get.

That’s why it pays to shop for a loan separately before you even set foot on a car lot.

SHOP AROUND

Purchasing a car is one of the biggest financial decisions you’ll make, so it’s a good idea to spend just as much time researching your financing options as you spend researching the car.

Getting approved for a loan from a bank or credit union ahead of time is a great way to do that. Apply for a loan before you decide what car to buy and you’ll know exactly how much car you can afford when you go shopping.

NEGOTIATING POWER

You can essentially act like a cash buyer when you get pre-approved, shopping around for the lowest price and best incentives you can find regardless of the dealer financing options.

You’ll also get better information on interest rates and your buying power. How do you know if the car dealer is really offering you good terms for the loan? Well, if you have a pre-approved loan from an outside lender, you’ll have at least one measuring stick for seeing how good of a deal you’re really getting on financing.

The more loan quotes you have at your disposal, the clearer a picture you’ll have of what’s a good deal and what’s not in the loan marketplace.

LOW INTEREST

Buyers are financing their cars for long periods of time to keep the payments low. The longer the term and bigger the balance on your loan, the more

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interest rates will affect your bottom line.

Getting pre-approved for a car loan ahead of time will help you get the best combination of loan terms and interest rates for your situation. It gives you options instead of just taking whatever rate the dealer happens to offer.

FULL INCENTIVES

New-car dealers and manufacturers can offer some enticing ways to get you to buy their cars, trucks and SUVs. They usually offer huge discounts off full sticker price, along with various incentives for loyalty. Some offer extra money on your trade-in.

When it comes to financing, though, you usually have to make a choice. Get all those incentives, or get low- or no-interest financing instead.

Get a loan from a bank or credit union, though, and you can have the best of both worlds.

Having a pre-approved loan will let you focus just on the purchase price of your vehicle instead of stepping into the muddy waters of dealer or manufacturer financing.

Make sure you do your math. Use an interest-rate calculator online to compare how much interest you’ll be paying over the life of your car loan to the incentives you’ll be missing out on if you choose zero-interest financing from the dealer.

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