Before you start car shopping, it’s in your best interest to understand all of your financing options before you begin. There’s a lot that goes into getting the best financing deal on the car you pick. From choosing a lender and finding attractive interest rates to deciding on terms and a down payment, determining what’s best for your borrowing needs has the potential to make your head spin. But it doesn’t have to. Learn all about your new car loans options before you ever step foot on the dealer’s lot with this helpful breakdown:
Lenders – If you aren’t planning to pay cash for your car, you’ll have to make the choice whether to borrow the funds from a bank, a credit union, a private lender or the automaker themselves. This is a decision you should make before you find the car you want to buy. Depending on the rates, terms and other financing options available, you should be able to decide on a borrowing solution that fits your needs best. Whichever lender you choose, getting pre-approved for a car loan can typically give you some leverage when you go to buy a car. That way, a seller knows you’re serious about your purchase and may be more inclined to negotiate on the price.
Rates – An attractive interest rate has the potential to save you a lot of money over the length of your loan. From fixed to variable interest rates, there are many factors that go into deciding what interest rate you qualify for. Your interest rate may vary based on your:
- Credit worthiness
- Amount you want to borrow
- Age of the vehicle you want to purchase
Terms – Typically, the shorter the term, the better the interest rate you can expect to receive. Car loan terms are usually offered in 36, 48, 60 or 72 month periods. So, before signing on the dotted line, consider whether it’s more important to:
- Save money on interest over the long run (if so, you’d probably opt for a shorter loan with a lower interest rate)
- Enjoy a lower monthly payment to increase your cash flow (if so, you’d probably want to choose a longer loan term that will stretch your payments for a longer period of time, causing your payments to decrease)
Down payment – Many dealers will require a down payment on the car you intend to purchase, however, not all specify how much or what percentage you must put down. Of course, the larger your down payment, the less you have to borrow. And the less you borrow, the less you have to repay, usually making your monthly payments lower. You can even try an auto payment calculator to see how much of a difference your down payment could make.
Buy or lease – If you don’t have a large down payment to offer, want to keep your monthly payments lower and are not interested in keeping the car for an extended period of time, leasing may be the option for you. However, if you’re even considering buying the car outright at the end of your lease term, you may pay more by doing so. However, if you want to bypass leasing, and own the car right away, buying the car up front will provide you a lower interest rate in most cases, thus saving you money over the life of your loan.
New or used – Typically, new car purchases offer slightly more competitive interest rates than used car deals. That’s because dealers are trying to make a new car purchase more attractive to you, the buyer. However, not all car shoppers are looking for the newest car on the lot. Also, used cars typically are lower in price than their new counterparts. While not vital, it is helpful to have an idea of whether you’re interested in buying new or used when getting pre-approved for a car loan.
Refinance – Maybe after all this talk of financing, you’ve decided to stick with the car you’ve got. In that case, you may want to consider the other financing option you have. An auto loan refinance is a great way to either enjoy a lower interest rate in order to save you money over the long run or change your loan terms on the car loan you already have. It’s just another financing option you have if you’ve decided against buying a car right now. Also, if you’re not sure you got the best rate when you drove off the lot, refinancing the loan you have could also be a great way to help you save even more on the money you just borrowed.
Whatever different borrowing options you decide on, you’re sure to find the financing you need for the car you want. All you have to do is do your research to understand you financing options before you go car shopping to ensure you’re getting the most out of the money you’ve worked hard for.
Andrea is the Chief Chick of Smart Money Chicks. After filing BK twice (once because she panicked, second time because the pro messed the first time up), she realized that it all could have been avoided if she understood more about how her Finances worked and the options available. At that point, she wanted to help as many as she could never make the same mistakes again. Our Promise is that all the content you read on here is created or edited by Andrea