ALT-1 Car Financing Tips and Information
Don't fall in love with your new "baby" and actually have to sell your firstborn to get it.
Not very many of us have the cash to buy a car outright. Even if you could, do you want to deplete your savings that much? Your most likely options are leasing or financing. Leasing has its own appeal, but here we'll focus on financing. You don't have a wealthy close friend or relative to loan you $20,000? That's okay, borrowing that kind of money has the potential to destroy a relationship anyway. Do you finance at the dealer or a bank? Follow these car financing tips and information and your sure to drive home your new "baby" in no time.
Financing at the dealership does have its advantages. Although convenient and fast, these are not usually the most competitive rates. Dealer loans are often front loaded, meaning you pay more on interest than the principal at the beginning of the loan. This is not good if you hope to pay off your loan early. Warning: Dealers usually mark up the interest rate to make money on the financing. So you visit your friendly neighborhood bank or credit union, right?
Banks can offer more competitive rates and personal service. Interest is usually simple, spread evenly throughout the term of the loan. However, banks are generally less convenient and not available nights or weekends. (We know you're already in love with that one car and can't wait any longer even though we told you to get your money first.) Also, your hometown bank or credit union may have fewer options being a smaller institution. What about a large online company?
Online financing is quick and very competitive. As with any online shopping, buyers should beware of potential risks. The old rule, "if it sounds too good to be true, it probably is," applies here. Stick with a well known name, like Capital One. Visit capitalone.com/autoloans to check rates. Capital One also offers a blank check program. This is a real check. Your rate is fixed for 45 days after approval. This gives you plenty of time to shop. (See, I told you not to get too attached.) Once you pick out your new ride, Capital One pays within 24 hours, up to a predetermined amount. This loan does not go into effect until you sign the check. With this program you gain the ability to focus on price, not financing at the dealer. A Capital One blank check is almost as good as shopping with a fistful of $1,000 bills.
What about the commercial I saw for that great deal on the new car I love? It is good to know what factory or dealer rebates or promotions are available. Check with the manufacturer so you have an idea of what actual dealer cost is. Never let the dealer make you worry that you are actually paying "their cost." Do to holdbacks and factory incentives, dealers will make their buck. Always read the fine print when it comes to special offers. In many cases you need a credit score of 680 or higher to get that deal you saw advertised on TV. Calculate whether you could handle the 0% interest. Who couldn't handle 0% interest? Those kinds of incentives are usually only available on short term loans. Can you afford the payment if you have to pay off your loan in 24 or even 36 months? Remember a newer car carries less risk to the lender and should generally have a lower rate. Are there any rebates? Often this is the better option. Make sure the rebate is applied directly to the cost of the car, not the total loan amount.
Whatever financing option you choose keep in mind these tips on your car shopping adventure
1. Don't forget to check on the cost of insuring your car. You don't want to find out you can't afford to drive your new ride after you've brought it home.
2. Know the value of your trade-in. Check with Kelly Bluebook or Edmunds before pulling up to the dealership in your old rust bucket (of course you just washed and vacuumed it, right?)
3. Don't get tricked into buying extras you don't need; such as window etching or underbody coats. You can buy window etching kits if you really want to. A can of spray is all you need to protect the interior. Underbody coating is suppose to protect against rust. Mine came off in pieces, at the carwash.
4. The dealer's extended warranty usually isn't worth the added cost. The manufacturer's warranty is usually sufficient.
5. Don't let your credit report be run unnecessarily. If you have your financing in order already the dealer doesn't need to look it up. Besides, several checks on your credit history can actually lower your score.
6. Don't focus on the payments. Focus on the actual cost of the car. Read up on and practice your negotiating skills.
Whether you finance at the dealer, online, or at the bank, remember your new car will probably be with you for years. Purchasing a car is a decision that should not be made without careful thought. If its a practical four cylinder or sweet V8, do your homework and get your financing ready first.
- Capitalone.com
