Buying a new or used car can be an exhilarating experience. It can also be frustrating. The need for financing is incredible – the sheer cost of modern automobiles makes it impossible for most consumers to buy a car without financing. However, many consumers do not know how to make the most of the experience and wind up with a less-than optimal auto loan, extremely high monthly payments or are even turned down for an auto loan. If you are unsure how auto financing works, here are some tips to help you get the best loan possible, keep your monthly payments manageable and enjoy that new car.
Know Your Position
Before you even begin looking at cars, you must determine how much you can afford to pay each month. This will determine what type of car you can get. Rather than simply visiting a lot to find a vehicle and then haggle with the salesperson, know what you can afford and how much you can spend. This way, you are armed when you enter the dealership and can make the best purchase decision.
However, do not lose sight of the bigger picture – while low monthly payments are important, the total cost of the vehicle is more important. A 60-month auto loan can tack on more than $2,000 in extra charges, thanks to the interest rate, alone. If your auto loan has a very high interest rate, the amount can be astronomical.
Your Credit Score
Your credit score and credit history are the two factors that determine the interest rate that you will receive. Of course, using a bank or credit union will give you a better interest rate than you can obtain through dealer financing. However, it is vital that you know your credit score and what your credit report says about you as a consumer. Things like defaulting on loans, charge-offs, legal judgments and debt delinquency look very bad on your credit report and will lower your credit score.
If your credit score is below 600, be prepared for very high interest rates. This means larger monthly payments, longer-term loans and generally paying more for the car than you would if your credit score was better. If you have the time, consider rebuilding your credit score prior to attempting to get an auto loan.
Shopping Around
Never decide to use dealer financing unless you have shopped around first. As mentioned earlier, banks and credit unions will give you a better interest rate (if you qualify), but are more sensitive to low credit scores. Even if you have a low credit score, shop around for your auto loan prior to making a deal with the dealership. You may be surprised by the number of loan options that you have. In addition to traditional lenders, consider applying with online lenders to widen your net.
Getting the right car means finding the right financing option. Do your research, know your credit score and shop around for that auto loan.
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