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Financing Car Loans

Always Consider Your Options When Financing Car Loans

Financing car loans is not an option for most people. Other than houses, cars are likely the biggest purchases you will ever make in your life, and it's unlikely that you have enough cash-on-hand. You might even have a home mortgage or other types of personal loans you are paying off.

Your total debt load and your credit standing will play a big part in your plans to purchase a new vehicle, so before applying for a new car loan or refinancing a car loan, it pays to do a little bit of homework.

For instance, before you even begin shopping for an auto loan, you should know your FICO score rating and your up-to-date credit history. Obviously, your credit score doesn't tell everything about you or your willingness or ability to repay a car loan; but, it is widely used by all lenders and will greatly influence them as to whether they will approve your loan and if they do, at what rate of interest.

Get up-to-date copies of your credit report from the three major credit reporting agencies: Equifax, Experian and TransUnion. You are entitled to receive one totally free credit report each year.

How To Get Your Totally Free Credit Report

Dealer Car Loans

You must next consider how you will finance your new car. Financing car loans through the dealer sometimes presents pitfalls.

Do those seemingly generous "zero percent car loans" offered by the dealers really offer you the best car loan rates? While that low interest rate car loan may seem attractive when compared to other loan sources which are often around 4% or more, you might be better off going for an immediate cash rebate if one is offered.

For instance, on a $17,000 car loan for 36 months at 0%, your monthly payments would be around $472.

But, after a $2,000 rebate, on a $15,000 loan for 36 month at 4%, your monthly payments would be about $443, or about $29 lower. Total interest costs would be about $960, so you would end up paying about $15,960. Compared to the $17,000 loan at 0%, you would save over $1,000 on the deal.

Use an online car loan payment estimator to run different scenarios to determine which would offer the better deal for you. A quick search on the Web will turn up a car loan finance calculator that's free to use.

Bank Car Loans

It's always a good idea to prearrange your financing through the personal loans department at your local bank or a credit union before you go shopping for a new car. This strategy offers several important advantages.

You will know that you are already approved for the loan, you will know the total cost of the loan, and you will also know how much you can afford to pay each month. Hence, you will know what price range of cars you should be looking at and avoid getting pressured into deals that you cannot afford.

Financing car loans in advance will also give you a distinct bargaining advantage. When negotiating with the dealer, the purchase price quoted by the dealer is dependent on whether you use their dealer financing, for example, GMAC car loans. Most times, auto dealers will accept a lower purchase price if you use their financing, but you will have to work out different scenarios beforehand to discover the trade-off amount where it's not to your advantage.

If the purchase price held out is low enough, it might be worth accepting the dealer's financing. You could always refinance your car loan on the following day with a different lender, depending on the current car loan interest rates, and whether it works to your advantage. But, there are usually costs associated with refinancing a car loan, and they should be factored into your decision beforehand.

Since you know exactly how much you can spend, you can reject any deal that appears less than attractive. If you remain firm, you can avoid taking on more debt than you can afford.

Whichever car dealership you visit, the new cars are virtually identical. If one dealership is reluctant to negotiate and won't lower their prices to give you the cheapest car loan, you might get a better deal with another. Always do a car loans comparison with several dealerships.

And it's not always about the lowest pricing, some dealers have a much better reputation for servicing later. Everything needs to be considered.

Finally

Carefully consider the advice given. And when it comes to financing car loans, consider all the options. Know how much you can afford, and don't take on more debt than you can repay.

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