Buying a car is a significant investment, and making a savvy purchase requires careful planning and informed decision-making. Here are some comprehensive tips to help you navigate the financing process.
1. Determine affordability, consider your financial situation, and set a realistic budget. Include all costs: down payment, monthly payments, insurance, fuel, maintenance, and registration. Stick to the budget and avoid being tempted by cars outside your price range.
2. Review your credit report and credit score so you do not have surprises when shopping. This is especially important if you have had credit problems in the past. Sometimes improving a low score is as simple as correcting mistakes or discrepancies in your credit report. Most corrections and disputes are completed in 10 to 14 days, and credit reporting agencies must complete their investigations within 30 days. Paying down existing debt and overdue bills can also give you a last-minute bump. As always, pay bills for credit cards, utilities, and other goods promptly to avoid late fees and further damage to your credit score.
3. Research thoroughly several types of vehicles (sedan, SUV, truck) to find what best fits your needs. Compare different models and makes for reliability, fuel efficiency, safety ratings, and user reviews. Check the average prices for the cars you are interested in to know a good deal when you see one.
4. Consider buying a used car. Although interest rates tend to be higher on loans for used cars, the lower amount you are borrowing can result in significant savings. Do not forget to get the car inspected by a trusted mechanic and a vehicle history report before purchase.
5. Do not focus on just the monthly cost. Dealers often try to sell you on a loan by emphasizing what you will have to pay each month. That does matter for household budgeting purposes, but to get low monthly payments you will have to extend the loan over a longer period, which will increase its overall cost. Another downside to a long-term loan is that it increases the chance that you will end up “underwater” or “upside down” on your loan, which is when you owe more on the car than what it is worth. Of course, a monthly cost that you can handle is important, too, so consider both factors when choosing a loan.
6. Make the biggest down payment you can, this shortens the time you will be paying interest on the loan. Putting down more money up front also means you will be paying interest on a smaller amount of money, costing you less overall.
7. Get preapproved for a loan before you set foot in a dealership. Check rates from banks, credit unions, and online lenders to get the best deal. Compare lenders be aware of loan terms, including the interest rate, loan term length, and total repayment amount. Having a loan secured ahead of time gives you a strong starting point for negotiations over financing.
By following these tips, you will go into the dealership armed with knowledge and confidence, making you a well-informed expert when purchasing your next car.