How to understand financing a new car purchase
If you are someone who isnât happy unless you have a brand new vehicle, then you have one of three ways open to you with respect to paying for a new car. You can pay cash for the car, take out a loan on the vehicle or choose to lease it. If you are like most people, you can probably eliminate the first option right off the bat. Most people donât have the latitude to walk into a car dealership and give a salesman a $30,000 check. However, you are certainly at an advantage if you choose to pay with cash. Youâll receive a good bit in savings in terms of interest. Of course, you have to look at your total financial picture as well when trying to buy a car.
Look at your Other Bills
Do you have a good amount of high-interest credit cards that need to be paid off? If you want to obtain a loan for a car, for example, and wish to put a sizable down payment towards the payment price, make sure you are not paying a higher amount of interest on any other obligations. It rather defeats the purpose of obtaining a lower interest car loan and making a substantial down payment if you have debts carrying interest at a significantly higher rate.
Determining the Term of the Loan
Today, most car loans will span over five years or more. While this helps your cash flow situation during that time, it also means that you are saddled with a far greater amount in interest too. Therefore, it may be wiser to opt for a loan for a shorter period of time. Choosing a loan for, say, five years can potentially get you into trouble financially. For example, suppose you decide to trade the vehicle in before your loan expires for a newer vehicle. You can end up being obligated for an amount that is higher than the noteâs worth.
Obtain Financing through your Bank or Credit Union
While you may be tempted to choose the low-rate financing offered by some dealers, do some checking first and make some calculations. Things arenât always what they seem. In some cases, you may be better off trying to obtain the lowest price you can for the vehicle and sidestepping any dealer-based financing. Make it your objective to get the best price for the vehicle you desire, especially if itâs a new vehicle purchase. Once you obtain the price you want, it probably is best to secure funding through a financial institution, like a bank or credit union. If you have a credit report that is less than stellar, youâd be better off to focus on getting financing outside the dealership.
Lower Monthly Payments â Not Always a Good Deal
When buying a new car, negotiation should center on what youâll actually pay. Just because a salesman offers you lower monthly payments doesnât mean youâve struck a good deal. Your interest rate and total are what you should take into consideration as well as the term of your loan. Lower payments mean nothing if you end up paying a lot more in the long run.