Finance a New Car
Purchasing a new car usually requires a serious financial commitment. If you are considering purchasing a new car but do not have enough cash to pay for it up front, you will need to secure financing to pay for at least a portion of the selling price. Learning how to finance a new car will help you avoid the many pitfalls commonly experienced when incurring debt for the purchase of a vehicle .
Contents
Steps
- Determine the amount you will need to finance via a vehicle loan.
- Your total costs will likely be significantly more than the sticker price of the new vehicle including sales taxes, warranty payments, and licensing fees that ultimately make up the total price of the vehicle. Depending on the vehicle cost and dealership requirements, this could add a few thousand dollars to your total vehicle price.
- Making a down-payment will help reduce the total loan amount, thus decreasing your monthly payments and interest expenses. Provide as large a down-payment as possible based on your cash reserves and payment ability.
- Compare loan offers from a variety of providers after you calculate the desired loan amount needed to buy the car.
- Car dealerships often have a financing department operating in-house. However, they may not have the most attractive loan terms for which you could be eligible. While these in-house financing departments offer the convenience of being tied directly to the dealership, you should seek offers from competing loan providers so you have more than one to consider.
- Credit unions are non-profit organizations and may offer members better interest rates on vehicle loans. Banks might also offer a better deal based on other loans or deposit accounts you hold there.
- Ask the dealership to match the best loan offer you collected from the competing financial institutions.
- If a bank or other private lender offers you better loan terms than the car dealership, ask the dealership if they would be willing to match the best competing offer. Many dealership financing departments would rather match a competing offer than lose your lending business. Never assume that their first offer will be their best offer.
- Read all loan contract and purchase agreements carefully before signing.
- Review all paperwork to verify everything matches the terms the salesman or loan officer promised you. It's easy to overlook hidden fees and non-disclosed penalties in the fine print of an agreement or contract.
Tips
- If you are purchasing a new vehicle from a dealership, ask if there are any recent special financing offers. Dealerships often offer low interest or even no interest loans to individuals purchasing new models. If they currently aren't running such a promotion, ask if they would be willing to offer you a previous promotion or match a competing dealership's financing offer.
- When securing a loan from any lender, your credit score will be a critical factor in determining the loan you will be eligible for as well as the applicable interest rate. Check your credit score a month or two before committing to a vehicle purchase. This will give you time to work toward improving your credit score prior to completing the loan application process.
- Dealers are notorious for engaging in "rate-padding," a practice in which they add 1-2 percentage points to the interest rate quoted by the lender. They then keep the extra funds as profit. In order to ensure that you are being quoted a fair interest rate, it is important not only to know your credit score, but to research average interest rates in your area for your given credit tier.
Warnings
- Avoid feeling pressured to sign any auto loan paperwork without reading the agreements fully. Take your time and ask for an extra day to review paperwork if you feel uncomfortable. You may even want to ask an attorney or accountant friend to look over it for you before you sign anything.
- Be very cautious about asking a relative or spouse to cosign your loan, even if your lender or dealer pressures you into finding a cosigner. Your cosigner will be liable for repaying the borrowed funds if you default on your payments. This may seem unlikely, but it can put a serious strain on an otherwise great relationship. Seasoned finance specialists encourage caution under such circumstances. It pays to research more about this type of arrangement before moving forward.
