When you’re ready to buy a new car, you’re very likely going to finance the cost of it instead of paying for it outright. But there are ways to do that there are better than others, so it’s good to know what those ways are.
The three worst ways to finance a car include financing it for long periods of time, not shopping around for the best quote, and accepting bad terms from the wrong dealer.
After you have read this article, remember to also read about the smart ways to finance your car.
Let’s take a look at each of these in more detail.
1. Financing a Car for a Long Time
At one time, people financed their cars for three to four years and no longer, which meant you didn’t have to wait long for the car to be officially yours. Today, however, that is not the case. The price of cars has gone up so much that car-buyers have to finance for much longer periods of time.
This might make the monthly note a lot lower, but in the long-term, that car is going to cost you a lot more than you imagine. In fact, the interest rate on your typical car loan is higher than that on a mortgage, and it can add up quickly. Do what you have to do to arrange a shorter car loan.
In the long run, you’ll save tons of money if you arrange for a loan that is just one year shorter.
2. Choosing the Wrong Financing
As a general rule, car dealers charge interest rates that are higher than average. When you buy a car from a dealer, it is easier to finance it through your dealer, but that doesn’t mean it’s the best thing to do. Dealers know they have a captive audience and that it’s simpler for you to get your financing through them, and that’s what they count on to get your business.
Be smart and shop around for other deals. The dealer’s “special agreement” might not be so special after all, so before you sign on the dotted line, make sure you’ve met with a few banks, credit unions, and other finance companies so that you get not just the lowest interest rates but also the best terms and conditions.
This brings up another point, and that is to make sure you read through everything carefully before you agree to do your financing with a certain company. Read the “fine print” so you get no surprises as you start to make your payments.
3. Not Shopping Around for Your Quote
While most financial institutions work hard to keep their interest rates competitive, that doesn’t change the fact that interest rates can vary greatly from one company to the next. Don’t ever assume that your regular bank is going to give you the best rates because that isn’t always the case.
Shopping around for interest rates will show you that not all banks are the same. When you’ve visited three or more banks for your interest rate, it’ll help you feel more confident because you can be certain that you’ve gotten the best rate after all. Getting the lowest interest rate always saves you tons of money.
In fact, even one interest rate point makes a big difference, so shopping around for the best interest rate is always a smart idea. You’ll thank us in the end!
Frequently Asked Questions (FAQs)
Is there a minimum or maximum when it comes to a down payment for a car?
In fact, many car companies allow you to purchase a vehicle without putting anything down. That being said, the more you put down on your vehicle, the less you’ll have to finance and therefore the less you’ll end up paying for the car in the end.
Should I finance my car with an online financing company, or are they all scams?
Online car-financing companies are legitimate businesses, but like any other financing options, you’ll have to check their agreement to make sure you understand their interest rates and any other terms and conditions so that there are no surprises later on.
How do I find out how much I’ll be paying over the course of the loan?
By law, finance companies have to give you a breakdown of what you’ll be paying every year of the loan. This is a detailed document that shows you what makes up your monthly payment amount and the total you’ll be paying in all. This can help you compare different finance plans so you can find the right one in the end.
Financing your next vehicle doesn’t have to be complicated, but you owe it to yourself to compare different finance companies so you can get the best rates and terms. Don’t just look at your interest rate – look at the “fine print” to find out about penalties for doing things like paying the loan off early and anything else that might complicate your life while you’re paying off the loan.