Hate your current bomb of a car and find yourself drooling at every shiny sports car that passes you by? We have two words for you: car finance. As much as you want a new car your bank statement and poor credit may be sending you signals that you should consider a new bicycle instead. When considering financing options on a new car, beware of those “easy credit” and “longer-term loans” currently being offered at auto dealerships. These deceiving offers can make buying an expensive car alluring and if you have poor credit, just look the other way, and keep saving! A bigger down payment can get you a lower interest rate as well.
Greg McBride, chief financial analyst at Bankrate.com, says consumers with poor credit shouldn’t buy a new and expensive car until they’ve paid down their debts and improved their credit rating by doing so. Instead, Mcbride suggests you “Buy a lower-priced car or a used car with a shorter payoff period. Paying it off will help you get a lower interest rate on your next car,” says McBride. “Don’t be fooled by the payment on a loan that’s six years or longer. Look at the interest rate, which could be double or more what borrowers with good credit can get.” Here are 12 tips on car finance to help you out.
1. Shop for Money First
Getting a pre-approved loan is some of the best money help you can get, as it will give you added confidence when it comes to negotiating the price you can easily live with. For lowest rates check your credit union or local bank quotes online.
2. Don’t Overspend
Your monthly car payment should represent no more than 20% of your disposable income. Remember, this amount should also cover your insurance and fuel costs (and boy is gas is expensive!).
3. Personal Loans
If you have great credit, a personal loan is usually the cheapest way to finance a car deal. Try getting one from a bank, a building society or finance provider, and make sure the loan is not secured against your home. Otherwise you will be putting the roof over your head at risk for that convertible you wanted.
4. Avoid Long-Term Loans
Be aware that auto loans will add up considerably in interest over the long run. The ideal car loan term is anywhere from 3-5 years. Short and sweet.
5. Certified pre-owned cars
Did you know that most cars lose 18% of their value in their first year? Though Certified Pre-Owned is another term for Used, these cars have been inspected and fixed before they go on the market, and come with a manufacturer-backed warranty.
If you have good credit, it’s probably the simplest type of car finance plan. After paying a relatively low deposit, you lease your car with the option to buy it by the end of the contract.
7. To Lease or Buy?
Leasing provides lower monthly payments than buying with an auto loan. But it’s not for everybody. If you don’t have money for a down payment or if you trade your car every two or three years, you may be a good candidate for a lease. But the car was never yours, really.
8. Car-Shopping Service
Hate haggling and dealing with money help issues? Auto-buying services, such as websites or discount clubs, make things easy with decent, no-haggle prices. But with most of them, you get quotations from only one dealer.
9. Set Your Target Price
Focus on the price you want and start searching the Web to find out a dealer’s price and their options. Remember, don’t hit the car lots until you’ve done your homework and can compare prices.
10. Negotiate a Purchase
If you are doing it yourself, learn the jargon first, and then get bids from several dealers, keeping the focus on the dealer’s invoice price, which you will know from your research.
11. New or Used?
Cars are built better now than in the past, so used cars or certified used cars make a lot of sense. But if you get a rebate or other cost break, the math may be on the side of a new vehicle.
12. Your Old Car
Don’t give up on your old wreck just yet; just get it assessed. Your current car can be an important factor in your budget. Selling it directly instead of just trading it in may also mean a sizable difference in what you get for it, though it may take longer. But hang in there; it’s money toward that sleek new car.