What Not To Do When You Finance Your Vehicle

September 23, 2008

Buying a car: one hears that it is every American’s dream. More importantly, unless you in one of the few cities in the US that offer decent public transportation, it is a necessity for every American.

Then, if you are buying a car, you’d better buy a new one, or one that’s just a few years old. Cars are built to become obsolete within 10-15 years, which is why the really old cars lose their value at an exponential (rather than linear) rate. Unfortunately, buying a new car all at once can put a strain on a young family’s finances.

The fact is, most new cars are purchased with the help of loans, and choosing the right auto loan is almost as complicated as choosing the right car. Here’s what to do, and what not to do.

First, do make sure to research your options. Auto loans usually come from one of three organizations: from local or nationwide banks, from local credit unions, or from the car dealer that sold you the car in the first place. No one source is guaranteed to offer you better deals than any of the others. After you’ve settled on the price of your vehicle (but not before!), get in-depth with your dealer about financing options. Call up your local banks and credit unions. Make charts.

Second, when you look at a prospective auto loan, don’t just look at the interest rate. The interest rate is a tempting and obvious figure to fixate on, because it’s so easy to compare. While the interest rate is certainly one reflection of how much you’ll be paying, it is not the only one. Also look at how much money you’re being asked to put down initially, at how long the payments will last, and–most importantly–if the loan involves any additional fees.

Third, do know your credit score before you start shopping for auto loans. Congress passed a law in 2005 that entitles every US citizen to access their credit report for free once every 12 months. Your auto loan interest rates are largely dependent on your credit score. If you know your score, you’ll know if your lender is asking you for higher rates than you deserve.

Fourth, don’t rush. Don’t become blinded by your need to purchase that car. When you agree to purchase an automobile, the dealership will offer you lots of financing options. These could turn out to be a good deal–but, more often than not, the car dealership will offer you somewhat higher interest rates than your local bank.

Finally, do try to aim for the loan with the with the shortest term that you can reasonably afford. You’ll have to pay more every month, but consider again: cars are built to become obsolete every 10-15 years. The market value of cars drops quickly (unlike that of houses, which tends to rise). You’ll want the loan paid off before your car loses too much of its value.

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Comments

One Response to “What Not To Do When You Finance Your Vehicle”

  1. Auto Loans for People on September 23rd, 2008 2:04 pm

    Do you know how many people apply without knowing their credit score and then still believe that the loan is “guaranteed.” People have to do their own background check first because they could wind up applying to 30 places and only receive 1 or no calls in return for all of their time spent finding the right auto loan company. Bad Credit is one thing but REALLY BAD CREDIT is another.

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