New Car, New Loan, No Problems: 5 Car Loan Tips to Help You Save Money
Cars, can’t live without ‘em, am I right? Most people have their own-- families normally have more than one. They are a huge part of modern life which means buying them is significant. If you can’t afford to buy your car outright (because, I mean, who can?), you have probably dealt with car loans before.
There are tons of ways car loans can go south. If you’ve never had to deal with one before, you can easily be taken advantage of and end up with a raw deal. Your car should be a blessing, not a curse with unfair interest rate and unreasonable terms. But don’t worry, I am here to help!
Big Mistakes To Avoid When Getting a Car Loan
If you are getting ready to get out there and buy a new car--whether for the first time or as a repeat buyer--you should really make sure you’ve done your research. Reading this article is a great place to start because we’ve got some great car loan tips to help you stay out of the way of any pitfalls. Get your notepad out and take some notes! It’s learning time!
Not Keeping Track of Your Credit Score
If you are planning on getting a new car and you want to have all your bargaining chips for that negotiating table ready then it’s imperative you know your credit score and what position you are in. Don’t rely on a dealer to tell you what your state of affairs are or what they can offer you. If you don’t know yourself, you’re liable to be sold terms that are much worse than your credit score deserves. The better your credit score, the more responsible you look and the safer a lender’s money is with you. Knowing your score means you know your value and you can argue accordingly.
Not Exploring All Your Options
A lot of people tend to go to a dealer, find the car they want, and immediately negotiate the price and financing with the dealer. This is a bad idea. One of the most important car loan tips is to make sure you explore all of your options. Better loan terms and deals can often be found from other lenders. Banks and credit unions often provide better deals.
Dealers often have markups applied by their lending partners that benefit the lender and the dealer… but not you. To avoid that, make sure you do your homework and search around. Even if the dealer is offering an appealing promotion, make sure to research. Tools like Lending Tree can help you make financial comparisons.
Not Getting Preapproved Financing Before Shopping
Pre-approval is an important car loan tip for multiple reasons. Firstly, it is a great way to keep your search in budget. Getting pre-approval means you have approval for a loan of a certain amount which means you are going to have to shop for whatever fits into that budget. This avoids any “falling in love” with a car with a price you’ll regret in the long run because you were just looking blindly. It will also greatly help you in the negotiation because the Dealer will be forced to match your pre-approval or do better.
It also means that you have forced the Dealer to “unbundle” the deal. Dealers get away with a lot when they confuse you by bundling the financing, the price, and any trade in into one giant, complex transaction. By coming with pre-approval from another lender, you are forcing the deal to be separate and, ultimately, cleaner and better for you.
Prioritizing Short Term Benefits Over Long Term
Here's another car loan tip: Don’t get hung up on the monthly payment. A lot of people go in hoping to get the smallest monthly payment possible but that can be a bad idea in the long run. A smaller payment means a longer loan term which means you will pay way more in interest by the time everything is said and done than with a shorter term loan.
The other thing to keep in mind is that if you go into a dealer talking about “low monthly payments,” they can try selling you a more expensive car with the longest loan term (72 months!). Seeing the low monthly payment, you might jump at the chance and end up paying more as far as price and interest go. Remember to weigh the total cost and the monthly payments.
Ignoring Negative Equity on Your Current Loan
Here is another of the important car loan tips: Be wary of a trade-in on a car you have negative equity on. Curious as to what negative equity actually is? Well, get ready to get learnt! Negative equity means that you owe more on your loan than your car is currently worth. This happens for a variety of reasons but is mainly to quick depreciation of your car value just after you buy it. If your monthly payments are so low that it doesn’t keep up with the depreciation of the price, you end up in the negative equity nightmare.
This is a real problem if you want to trade your current car in for a new one. The new loan will include whatever your equity is on top of your new car’s price. For example, let’s say you bought a car at $35k and, a year later, owed $25k but the car is now only worth $21k. If you trade that car in, that extra four thousand dollars is gonna get added to your new loan which means—that’s right!--You start your new loan with negative equity. You will also have a harder time arguing for the best terms.
Ready, Set, Make that Deal!
So, hopefully, this has been helpful and you’ve come away with the most important lesson: Do your research and don’t leave money on the table. The more you know and the more you are prepared for, the better the negotiation will go for you. Keep this car loan tips in mind as you start your journey! It should help you and keep you from needing to refinance in a year or two!
If you want to buy a new car but aren’t sure about where you’ll get the money for a down payment or the upfront fees, perhaps look into a title loan! If you have a car you currently own, you could take a title loan out on it and use that money to help fund your new car! Check out our title loans here! We’d love to help you on your journey!
Note: The content provided in this article is only for informational purposes, and you should contact your financial advisor about your specific financial situation.