Finance a car at the dealership? Getting an auto loan may seem like an overwhelming process with loan offers from banks, financing companies, and dealership financing.
It’s exciting to purchase a new or used car. We can easily get swept up in the emotion or influenced by the dealer. But if you come prepared you’ll end up driving off with your car knowing you’ve got the best financing.
So what can you do to lower the cost of financing a car?
Know how much you can afford after you’ve allocated your income to your goals.
To be frank, a car is nice and all but it isn’t a goal in itself. It’s a means and a tool to achieve your goals. For instance, you need a car to get you to and from your dream job. Whether you get there in style may matter to you, but if you align the purchase with your values, you may find what matters is that you get to work in your dream career and with the best employer.
Now, lets get into the nitty gritty of financing your car.
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How to Finance a Car to Save You Money
You can shop for loans at banks or credit unions, and online. Start with your existing financial institution. Then get quotes from several lenders to compare rates and terms. By shopping around, you may get a better offer.
A service offered by Even Financial helps you shop rates from different financing companies too.
Before heading to the dealership, you want to be prepared. Coming in with a pre-approval can help you negotiate the car price down because you know exactly how much car you can finance.
To get an auto loan do the following:
Step 1: Check your credit report and credit score
The higher the credit score the higher the likelihood you will be approved for a low-interest car loan. Review your credit report and make any corrections needed or take the necessary steps to improve your credit score before applying for an auto loan.
Step 2: Make calculations
Review your budget to determine how much you can afford and make necessary adjustments so you do not put yourself in a future financial predicament.
Ask and answer these questions: How much down payment do you have? How much additional cash is available?
Make sure you’ve calculated the additional expenses such as taxes, maintenance, fuel, parking fees, etc.
Step 3: Find a car in your budget
Start researching the vehicle types you can afford. It’s important to think about the car type only after you’ve made some calculations. This will help ensure you focus your car shopping on affordable options. Research cars on the website Kelly Blue Book. It might be tempting to think about the car first before you determine what is financially realistic.
Step 4: Get pre-approved
Apply for an auto loan with your bank or credit union with the calculations you’ve made in Step 2 and the price range of the car from Step 3. Once pre-approved you can now go shopping for your car and negotiate for a better price. If you find a car a bit above your pre-approved amount, you can always call the lender and see what they can do. You can also use your pre-approval as a negotiation tactic AFTER you’ve agreed to a purchase price.
Be mindful of the car salesman who may try to convince you to take dealership financing. Now, if you have excellent credit you may qualify for dealer incentives and zero-percent financing. Those are viable options to consider. However, having your own pre-approval coming into the negotiation can boost your confidence and help alleviate stress.
Step 5: Negotiate and choose
Choose your car and settle on the terms to get the vehicle. In some instances, you may need to send the purchase order to your bank or credit union to finalize the deal. The dealerships may require a down payment for the car and request that a check from your bank/credit union is sent to their financing department. Some dealerships do work directly with credit unions making this process seamless.
More on Financing a Car
The rule of thumb when financing a car is not to take on a loan that’s more than you can pay off in 4-5 years.
Financing for longer years can slightly lower your monthly payments as you extend it to 6-8 years. But that is not always the best route to take as you focus on achieving financial security. When you do the math, you’ll get shocked at how much the car will cost you in the end.
In order to get precise loan rates, you may need to apply, and getting multiple quotes from lenders may impact your credit score. If you plan on shopping for the best rate and want actual quotes, do so by applying to different lenders within a 30 day period of your initial auto loan application. This applies to any application whether its a bank, credit union, online, or dealership.