In the excitement of buying a new car, many details are often overlooked that end up costing thousands of dollars. While that new car smell might have you sprinting into the sales office, you need to make sure you are on steady financial footing before signing that contract. There’s a lot that goes into buying a car long before you ever visit the car lot. You need to understand the whole process is you are going to make the best decision.
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Know Before You Go to Buy a Car
There are many things that must be considered before you go test drive a new car. First, you have to consider if you are going to buy brand new or if you are going to buy a used car. There are differences in the prices to be sure, but there are also differences in the financing available and the warranty that may be available. You also need to know your budget. This is where it gets tricky. Too many people create their budget off the cost of the car itself and forget to add in the cost of the lot fees, sales tax, and financing charges. Your budget needs to be the most you are willing to pay for the whole thing. Additionally, you need to consider your ability to fix little things that go wrong or how much you want to spend on repairs. Used cars may not have the warranty that a new car will, and you should also figure in the expenses of repairs or purchasing an extended warranty.
Get Your Credit Score
If you aren’t planning to pay cash for your car, then you will want to know what your credit score is before you look at cars. Anytime you are going to use financing to make a purchase, your credit score impacts what kind of lending terms you will receive. Auto loans are different from lines of revolving credit or a mortgage on a house. Many lenders are more willing to take a risk on issuing a car loan to someone with bad credit because of how easy it usually is to repossess the car when the owner defaults on the loan. However, shaky credit is going to end up with a loan rate that is painful. Those in desperate need of car will swallow this fact and sign on that dotted line because they have no other choice. If you already know a ballpark range on your credit score, you can decide if right now is the time to buy or if you should wait. Credit Karma is a popular free tool that helps people know their credit score, but it also offers tools that guide you on how to improve it.
If your credit isn‘t good, there are several things you can do before you think about a new car. The unpopular thing to do is save up enough money so you can pay cash for the vehicle. However, you could adjust your wants and opt for a used car that costs significantly less than what you originally wanted. Though you will probably still get a terrible interest rate, the payments are more manageable and it reduces the long-term damage of accrued interest. Lastly, you could pursue interest rates from banks or credit unions that aren’t affiliated with the dealership. Dealerships advertise good rates as a way to bring in potential buyers, but the fine print for these ads show that only those with a FICO score of 750 or higher will get them. Shopping around could get you a better rate, especially if you work with a local bank or credit union.
Consider Online Lenders
Those with an excellent credit score may want to take their chances with the dealership for financing. After all, dealers work as a broker for multiple lenders and major institutions offer competitive rates. According to recent results, a new car loan for a credit score of 750 or higher averaged about 4.65%, while a used car loan was up at 4.9%. For refinancing, the loan rate was down to 4.20%. For low credit scores, such as below 600, the average rate for a new car was 15.72% and a used car was 15.97%. These rates add up to a lot of extra paid on the car, the payment itself could cripple your budget. For those who want to avoid these high rates, online lenders provide an option for a different rate.
Negotiate Your Terms Before Buy a Car
When you do settle on a car and you are looking at your financing options, you want the shortest loan terms as possible. The caveat with this decision is that your monthly payments will be higher, but the trade-off is that you will get a lower interest rate. Salespeople are able to negotiate the price of the car, but what they will try to do is negotiate based on what you want your monthly payment to be. For them to lower your payment, they often extend the terms of the loan, rather than just adjusting the price of the car. They take your payment that was once $425 and turn it into $300. They did this by adding more time to your repayment schedule, which in turn, increases how much more interest you are going to pay over the life of the loan.
You have a lot to think about before financing a car. Knowing this information before you go and getting your heart set on a car can save you thousands of dollars.
