Some Tips for Car Finance


Car buyers typically focus most of their efforts on finding the perfect car and only consider the car finance at the end of the trip. While getting the right car is crucial, figuring out how to pay for it and getting a car loan is also a key part of the car buying process.

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Car buyers typically focus most of their efforts on finding the perfect car and only consider car finance at the end of the trip. While getting the right car is crucial, figuring out how to pay for it and getting a car loan is also a key part of the car buying process.

Here are six steps to take when financing a new or used car:

1) Learn the language of borrowing money

Before you embark on your car finance adventure, you need to understand some basic terminology. 

Figuring out the monthly payment on a loan requires relatively complex math because as the loan balance shrinks, you'll pay less in interest each month. Fortunately, you can find out quickly by inserting some numbers into our car payment calculator. 

When comparing car loans, the most important thing to look at is the cost of the car plus the total cost of interest. Focusing on monthly payments, the number of months you'll be paying, or the interest rate alone won't give you a full idea of the total cost of the vehicle.

2) Know your credit score 

Your credit score is a snapshot of your creditworthiness and ability to pay off a car loan (or any other type of loan or credit card). It basically boils down to a three-digit score from your credit report information. A higher number indicates that the borrower is likely to repay the loan, while a lower number indicates that the loan is more likely to default.

3) Find a good financing deal

The interest rate charged by different lenders depends on market demand, your creditworthiness, the amount of your loan relative to the value of the car (loan-to-value ratio), and your risk appetite. With a little research, it's easy to find generous promotions with competitive prices and favorable terms. 

Where can you get a car loan? 

Just as you should shop at several dealerships for a car, you should shop with several lenders to find the best deal when you're financing a car. Never before have car buyers had so many loan options or easier access to information about interest rates. In addition to getting loans from the financing arms of many automakers, you can get car finance from large national banks, small community banks, credit unions, financial companies, and online banks. 

4) Apply for a car loan the right way

You should apply for a car loan from several lenders. It will take some time and you will have to provide your personal information to some lending institution. There is nothing wrong with submitting multiple applications, as long as you do so in a short period of time to avoid damaging your credit score. If you spread out your applications by a few months, each application will reduce your credit score by a few points. Completed in a short period of time, credit reporting agencies will see multiple applications as just one query.

Although you may not need to use a quote, you must have a quote ready before you visit the dealer. You may want to do this a week or so before you visit the dealer so you have a pre-approved deal in your pocket before you actively start buying the car. If you have the right time, any inquiries they make with the credit bureau won't affect your credit score. If you don't have a pre-approved financing package, the dealer won't have anything to try to beat, and you'll be forced to settle any auto financing deal they offer. If you have a pre-approved place, you won't feel pressured to accept a deal, which is bad for your wallet.

5) Check dealer financing offers carefully

When you research what used or new car finance is available and you have a pre-approved deal in hand, it's time for the fun part: buying the car. Knowing that you've got a financing plan that you can afford helps ease the stress of the process and allows you to focus on negotiating a good price and a fair deal for your new ride.

In general, car salespeople want to bundle the three components of a car purchase -- the price of the car, the replacement value, and the financing -- in a nice, neat package. On the other hand, you want each of these components to be treated as a separate transaction. You can do this in a couple of different ways.

6) Close the deal

Once you've reached a deal that's acceptable to both you and the seller, it's time to sign the paperwork. You must read all the documentation to ensure that it conforms to the terms you have agreed to and does not include any expensive add-ons or any blank Spaces. If there are any errors or blanks, please insist on correcting or filling in before signing the document. If the finance officer says they want you to sign it and they'll take care of it later, politely decline and state that you'll only sign it if they're right.

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