Financial Tip Friday - What to know BEFORE buying a car
Consider these tips before you buy a new car
Do one thing: Before you let a car dealer provide financing, check out the loan rates for new and used automobiles at your local credit union or bank. Often, that’s where the best deals are.
Look for Financing First
It’s wise to check auto loan rates at credit unions and banks before you begin the car-buying side of the process in earnest. Many consumer advocates say it’s best to avoid allowing the dealer to provide or assist in finding financing for your car.
Tip: At the very least, you shouldn’t allow a dealer’s financing offer to be the only offer. Why’s that? The Federal Trade Commission (FTC) and others warn that dealer-obtained financing may not be the best option for most buyers.
With tight profit margins, some dealers have been known to use financing to bring in extra money.
For example, a customer who qualifies for an annual percentage rate (APR) of 5% might be told by a dealer they qualify for 7%, so the dealer can pocket the difference.
This is key – before deciding which loan to take, compare the APR and the length of the loans. Typically, the longer the term of the loan, the more you end up paying in interest. Aim for a loan that spans five years or less.
And with car prices where they’re at, try to save as much as you can on the financing portion of the process. Be aware of interest rates too, as they are another cost to factor into your purchasing considerations.
Get Pre Approved
Besides a home, buying a car is usually the second most expensive purchase most people will make in their lifetimes. And just like with home loans, consumers can get preapproved for an auto loan before they ever step foot inside a dealership. Credit unions, in particular, often have highly competitive rates for both new and used car loans. Check with yours before you head to the dealership.
Know Your Credit Score
To make sure you qualify for the best auto loan rates, it’s smart to check in on your credit score and reports to know exactly where you stand. Those with higher credit scores, of course, tend to get better (lower) financing offers from lenders. Those with lower scores, in the range from 350 to 800, typically pay more. If possible, start reviewing your credit score and pull your credit reports a few months before you decide to buy so you can make adjustments if needed. Thrive members already have 24/7 access to their credit score with the SavvyMoney tool.
Don’t Forget The Cost of Auto Coverage
The final price you end up paying for monthly loan installments won’t be your only major expense for your new car. Besides things like gas and maintenance, you should also factor in the cost of auto insurance into your transportation budget.
Originally written by SavvyMoney
