Unless you have the cash to buy a car outright, you’ll need to find someone to front you the money. If you’re smart, you’ll do that before you start negotiating. Plenty of lenders will pre-approve you for a certain loan amount based on your income and credit history. That way, you’ll know exactly how much car you can afford, and you’ll be able to leverage your financing deal against the financing offered by the dealership.
Getting the financing: There’s only one hard-and-fast rule when it comes to financing: go with whoever gives you the best deal. There are plenty of options open to you, including the following:
is as easy as it gets – you buy the car, then you walk 15 feet to
the financing person’s office, and you set up your payments. Of course,
the rates you get may not be the best, so you need to shop around for
a loan beforehand, to make sure it’s a good deal.
and credit unions: The
same bank that keeps your money in a vault will lend you what you need
to buy a car, and you’ll usually (but not always) get a better deal
than the dealer is offering. Credit unions may have even better rates.
Either way, you’ll probably need a 10-20% down payment on this kind
- The Internet: As with everything else these days, you can shop for car loans on the Internet. You miss out on any kind of personal relationship, but you can get quick approval and very competitive pricing.
Important finance vocabulary: Don’t let yourself get derailed by all the lingo when it comes to securing financing. Here are a few key terms to familiarize yourself with:
it’s just that – the price you and the dealer finally agree on,
minus any rebates. The dealer will calculate tax based on this amount.
is what you put down to symbolize your intent to pay off the rest of
the vehicle. The more you pay up front, the less you’ll pay every month,
and the lower your interest rate may be.
is the rate a lender charges you for borrowing money. A higher rate
will increase your monthly payments. To see how the rate affects the
total amount you’ll end up paying, play around with our loan calculator.
- Term: This is how long you’ll be paying off the loan. The longer the term, the smaller your monthly payment, but the more total interest you will pay.
The power of a trade-in: If you’ve already got a car or truck, ask about trading it in. Depending on what your car is worth, you may be able to use it as a down payment.
Then again, you may not get much at all for it – it all depends on what the dealer thinks he can re-sell it for, either on the lot or at a used-car auction. Before you head to the dealership, check the Kelley Blue Book to see what your car is worth. If the dealer is offering you less than you can get by selling it yourself, the trade-in becomes less attractive. As always, research is the key.