How to get a car loan?
Before you get a loan or lease for a car there are a few steps you should follow to ensure you get the best deal for you.
The main difference between leasing a vehicle and getting a loan to purchase a vehicle is that at the end of the lease term you would return the vehicle to the dealer, at the end of a loan you own your vehicle.
If you are someone who doesn’t like to drive the same car for a long time a lease may be for you. Over time, a car will gradually depreciate in value. Leasing the vehicle will allow you to drive a car, but not actually invest in something that will depreciate in value. If you lease a car you will have to keep the car in excellent condition, clean, and with low mileage. If you drive a lot, or tend to be messy then you should probably purchase rather than lease. Any damage you do to the car and additional miles become your responsibility, and could be become quite costly.
There are two kinds of leases open end leases and closed end leases. In a closed end lease at the end of your lease term you would return the car to the dealer, pay for any additional miles and damage and your responsibility would end. The dealer would then be responsible for the re-sell of the vehicle. Open ended leases make you financially responsible for the re-sell value of the vehicle. If in your lease you thought the car would be worth $10,000 at the end of your lease and it is actually appraised at only $9000 then you would owe the dealer $1000. The same is true the other way around however. If you estimated the cars value at $9000 and it is actually worth $10,000 then you would receive a $1000 refund.
If you decide to purchase a vehicle rather than lease you have two main choices new or used. Used cars can be a great option to help you save money with your car purchase. Many dealers will have used cars with extremely low miles, and like new interiors for a fraction of the cost of the new vehicle. Look and see what your dealer has to offer. An important step in deciding which is best for you may be first determining what the depreciation value of the type of vehicle you are looking for is. If the car looses 20% of its value in the first few months, then maybe you should find a slightly used car that’s cost already has that savings
At most dealers the price of the vehicle is negotiable. Know what the blue book value for the vehicle is before you shop, and also know what other dealers are offering for the same vehicle. Even if you’re willing to pay what the dealer offers try and talk him down to a lower price. Look for scratches, or minor flaws in the vehicle that should warrant some kind of discount. Most dealers are willing to give you massive discounts if you’re willing to take the car that day. If you aren’t getting the price you want…leave. By leaving the lot you give the dealer the impression that you are going to go shop somewhere else. They would much rather sell you the car at a lower price than forever loose you as a customer.
If you are financing a vehicle your interest rate will be higher with a used vehicle then a new one. Some dealers will offer 0% down deals for new car purchases. Keep in mind that while 0% may sound like a good deal now, that money you’re not putting down will be financed and you will be charged interest on it. If you decide to finance a vehicle:
- Before you go to dealer looking for a car get a copy of your credit report and make sure the information on it is accurate. Your credit report is what the dealer and other lenders will look at to determine whether to offer you a lease or loan for a vehicle, and at what interest rate. You want to make sure they are looking at the right information. A few negative items on your credit report can make the interest rate for your vehicle skyrocket, or can cause you to be denied all together. Check to make sure your credit cards don’t report you making late payments that you did not, and you don’t have any collections on your report that have been reported in error. If you do find something that is inaccurate first call the credit card or company that reported the inaccurate information and discuss it with them, afterwards you may want to report the information to Equifax to have the item removed.
- Take a look at your finances and know what you can afford to spend each month. Longer term leases will have smaller monthly payments, but will also have higher interest rates that can make you pay hundreds if not thousands more for your vehicle. For instance for a new car you may pay 4% interest for a 60 month loan, but 6% for a 72 month loan. The 60 month loan will have monthly payments of $368, the 72 $331. You may be saving $37 a month in car payments with the 72 month loan, but in the end you’ll be paying $2664 more for your car over the 72 months. Determine whether the lower payments over time are worth the additional cost to you. Try to get a loan for the shortest term you think you can afford the monthly payments for.
- Know what interest rates are offered. Spend some time researching on the internet, or through phone calls to local banks what interest rates are being offered for new and used car purchases. If you have a chance to take to a loan officer at a bank, let them know your credit score and see if they can give you an idea what kind of interest rate you would qualify for. The lower interest rates are only for people with the best credit. If your credit has a few bad marks, hasn’t been established for a long time, or has several cards up to their limit, then your credit score can be affected and your interest rate made higher than the minimum. If you have an idea of what interest rate to expect when you apply, then you’ll be more aware if you’re being ripped off.
- Try to get a loan from a local bank or credit union before trying to get a loan through a dealer. Dealers often make more money by offering you a higher interest rate than you should have to pay. Going to your bank or credit union allows you to get the loan from someone who personally has nothing to gain by you having a higher rate. A bank can provide you with unbiased lending and most of the time a better deal.
Be very careful applying for loans over the internet or at several different dealers. Each time you apply for a loan, and are denied your credit score goes down, and loans will become harder to receive. Only apply for loans that you plan on accepting, and think that you will qualify for.