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Often when people go shopping for a car, they begin by looking at dealer or manufacturer Web sites to see what type they would like to buy. Before that step, though, shoppers should figure out what their needs are, how much they can afford to spend, and decide whether they should buy or lease or choose a used car instead of a new one. Many people make the mistake of shopping for a car, then worrying about how to pay for it. Instead, check into your financing options before you get near a dealership.
You have many options — from credit unions to banks to the captive financing divisions of the automakers themselves. Offers can vary considerably; as with a real estate loan, even a seemingly small difference in the interest rate being offered can cost (or save) you a lot of money over the life of a new car loan. And just as you would haggle with the salesperson over the price of the car itself, you can and should try to negotiate the best deal possible on your financing. Make them earn your business; do not just give it to them on a silver platter. If one is offering 1.9 percent financing, you may have to forego an additional rebate to get it. Get the specifics and ask your bank/credit union if they can do better.
Start with these steps:
- Begin with a budget – If you do not have a family budget, you should create one to see how much you can spend on a car.
- Check your credit first – By checking your credit score months before you buy, you can be sure you will get the best interest rate on a loan.
- Buying new vs. used – The pros and cons of a new car versus a used car are outlined here. Which one is right for you?
- Buying vs. leasing – Here are five questions to ask yourself when trying to decide whether you should buy or lease that new car.
- How much can you afford – Experts say you should spend only 20 percent of your monthly budget on automobiles.
- Finding the best car for you – Consider your lifestyle and the needs of your family before you choose a car.
Choosing the Car
After you have determined how much car you can afford, it is time to start shopping. Many people begin their research online, and then visit a dealer. There they might learn about rebates and dealer incentives. A new trend is to use an intermediary to do the searching for you like autotrader.com.
Some things you need to take into consideration when choosing the right car is insurance costs, tag fees, gas mileage, seating/capacity and options. We all want the car we cannot afford! The trick is to find the one we can afford that is closest to the “dream”. Everyone’s needs vary. A college student may only need a small economical vehicle on the sporty side, a Mom needs a minivan for space and durability and Dad needs a truck that can tow a boat. Take your needs and wants and spin them into one great car decision. Shop ‘til you drop and do not make rash decisions. When you decide to start test-driving, do not let pushy salespeople talk you into anything you do not feel comfortable with. Once you have found “the” car, walk away. Go home. Sleep on it. Not only will your mind be fresh to take on the sales staff but also the sales staff will probably give you a better deal to keep you from walking away again. Remember, you are the customer and should be treated with respect.
The Final Deal
Negotiate your finance arrangements and terms just as you negotiate the price of the vehicle. Understand the value and cost of optional products such as extended service contracts, credit insurance, or guaranteed auto protection. If you do not want these products, don’t sign for them. Always take the time to read the contract carefully before you sign it and ask questions about anything you do not understand.
Your dealer may be able to offer manufacturer incentives, such as reduced finance rates or cash back on certain models. You may see these specials advertised in your area. Make sure you ask your dealer if the model you are interested in has any special financing offers or rebates.
Generally, these discounted rates are not negotiable, may be limited by a consumer’s credit history, and are available only for certain models, makes or model-year vehicles. When there are no special financing offers available, you can negotiate the annual percentage rate (APR) and the terms for payment with the dealership, just as you negotiate the price of the vehicle. The APR that you negotiate with the dealer is usually higher than the wholesale rate described earlier. This negotiation can occur before or after the dealership accepts and processes your credit application.
Do you really know everything there is to know? Do you know the difference between leasing and financing? Know what an APR is? Credit insurance? Guaranteed Auto Protection? You need to educate yourself on these terms, and understand the value and price of aftermarket products. If you do not want something, do not sign for it. See the NADAguides.com Auto Loan Glossary to define these terms. Another good idea is to take along a friend or family member that is well versed in car buying and let them help you.
After the Purchase
Make your payments on time for late or missed payments incur late fees and appear on your credit report, which can impact your ability to get credit in the future. If you financed the vehicle, be aware that the bank, finance company or credit union that bought the financing contract from the dealership holds a lien on the auto title (and in some cases the actual title) until you have paid the contract in full. If you have difficulty making your monthly payments, talk to your creditors. Work out a repayment schedule and, if necessary, seek the services of a non-profit credit-counseling agency. If you default, a creditor may take the auto in full satisfaction of the credit agreement or may sell the auto and apply the proceeds from the sale to the outstanding balance of the credit agreement. Be aware that repossession can occur if you fail to make timely payments. It does not relieve you of your obligation to pay for the auto. The law in some states allows the creditor to repossess the auto without going to court.