How To Finance a Car the Smart Way
Buying a new or nearly new car is one of the biggest financial decisions you will make, and how you decide to make the purchase is important. The most economical way to buy a car is with cash. That way, you’ll only spend what you have available and you won’t be paying interest on a loan for years to come.
However, if you really want or need a newer vehicle, you’re probably going to have to finance the car. But you shouldn’t just choose a car from the dealer and accept the financing terms they offer. To get the best financing deal, you need to consider several factors. Plan ahead and follow these steps to finance your car the smart way.
Get Your Credit Score in Order First
Before you start shopping for your car, you should check your credit score. You can check it for free but only use the official website. Some imposter sites offer free credit reports, but they often come with strings attached, carry hidden fees, or collect your personal information.
A high credit score pretty much guarantees that you’ll be accepted for a loan. If your score is low to average, you may still be able to get financing, but you will most likely pay a higher interest rate than someone with an excellent credit score. You might also be limited on how much you can borrow, so you may not be able to get that luxury SUV you’d like.
If you can put off buying your new car for a while, take some time to improve your credit score. Boosting your score will give you more auto financing options, and you could save yourself a lot of money in interest charges. It takes time to build up your credit score, but if you can extend the life of your current car for a few months or use alternative transport, you’ll reap the benefits.
Save Up for a Down Payment
Another step you should plan ahead for is saving up for a down payment. While it’s possible to finance a car without making a down payment, you’ll take on a much bigger loan with higher monthly payments and the interest rate will often be higher. Also, as cars depreciate in value quickly, you could find that you owe more for your car than it’s worth as soon as you drive away from the dealership.
For a new car, you should aim at paying a minimum of 10% to 20% upfront. Older cars don’t lose their value as quickly, so you could make a smaller down payment for a used car. If you have a low credit score, a bigger down payment will get you a better financing deal.
When you’re working out what you can pay upfront, factor in the value of your trade-in. It’s useful to do some research to know what your trade-in is worth. Tools like the Kelley Blue Book can be used as a guide to your car’s worth. You can also get a free trade-in valuation from Oxmoor Chrysler.
Get an Idea of What You Need To Spend
When you start shopping around for your new car, you should make a list of vehicles and the features that you definitely want or need. The things that are important to you might include the number of seats, the hauling or towing capacity, smartphone connectivity, or a great sound system. Bear in mind that the shorter your list, the greater your choices will be.
Once you’ve got your list, visit websites such as Edmunds that will give you a good idea of what you’ll need to spend. Your aim is to get the car you want with the features you need without spending more than you have to.
Understand Taxes and Fees
When you know the price of the car you want, it’s important to understand the cost of the taxes and fees you’ll have to pay. These could include licensing and dealership fees. You should pay these fees in cash, so you’ll need to take them into account with your down payment. To find out what the taxes and fees are, check your local DMV website and contact the dealership.
Is It Better To Finance a Car Through a Bank or Dealership?
Financing your car through a bank or credit union involves going directly to a branch. Initially, it can be beneficial to ask for preapproval for a car loan. The lender can give you a quote for a specific amount and a letter of commitment that you can take to the car dealer.
Dealer financing works in much the same way, but the dealer does some of the legwork for you. If you’re armed with a bank loan preapproval quote, you may be able to negotiate a better deal with the dealer. You might get a lower interest rate on a new car than on a used vehicle. Some dealers might offer promotional low-interest financing on certain new models.
What Is a Good Car Loan Rate?
According to an Experian report in 2020, the average auto loan interest rate for a borrower with a credit score of 720 or more is 3.65% for a new car and 4.29% for a used car. For someone in the mid-range of 620 to 659, the figures rise to 7.65% and 11.26%, respectively. With a low credit score of 579 or less, you could expect a rate of 14.39% for a new vehicle and 20.45% for a used car.
Finance Through Oxmoor Chrysler
When you purchase your new or pre-owned from Oxmoor Chrysler, you can get preapproved for financing in a few simple steps using our secure online shopping tool. You’ll spend less time filling out paperwork at the dealership and we’ll follow up to let you know which financing options best suit your needs, even if you’re looking for bad credit financing solutions. You can also use our car payment calculator to work out your car payment plan.
Following these steps should help to get the best deal for financing your new car. The most important things are not to rush into taking out a loan and doing your homework so that you’re armed with all the facts.