Is it time to buy your next car? If so, you’ll probably enter into a loan and need to know the best way to do this. Here are some car loan tips that can help.
Buying a car isn’t too difficult unless you’ve got a poor credit score, a low down payment, or aren’t sure what you want to buy. Actually, it can be extremely hard to go through the process of buying a car, but you can make it much easier if you’re prepared for what’s to come and have some information at the ready.
1. Understanding Your Credit Is the Right Place to Begin
As much as most of us hate worrying about our credit ratings, this score will be the single-most-important part of your loan. The better your score, the lower the interest rate. If you’ve got a high credit score, it tells financial institutions that you’re a reliable risk and worthy of their money. If your score is low, the opposite is true. If you go into the car buying process already understanding what your credit score is, you’ll be prepared for what’s to come.
What Happens if You Have a Low Score?
If your credit score is low, there’s a better-than-good chance you’ll need to secure a loan with a high-interest rate from a company that specializes in low credit scores. As part of one of the car loan tips you’re trying to understand, you need a plan for improving your credit score once you’ve secured the loan and bought the car that you’ll drive. Treat the car you drive and the payments as a way to improve your credit score. Don’t miss any payments, but also make sure you pay all of your other bills on time as well.
What Should You Expect if You Have a High Credit Score?
When you approach the loan process with a good credit score, you can shop around for the best loan rate offered. This means you should find out what the car dealership offers and check out the rates at your bank or credit union. Your impressive credit score makes you a good risk for financial institutions to offer you the loan you want to enjoy. With a good credit score, you’ll enjoy the benefits of options and deals offered during the car-buying process.
2. Secure the Shortest Loan Term You Can
You’re buying a car, and most vehicles can last for many years when properly cared for. The sooner you pay off the loan, the longer you’ll have a vehicle without any payments at all. One of the most important car loan tips is to secure a loan for the shortest term possible. This reduces the amount you pay in interest and ensures you can live without payments for much longer. Compare the payment to the term and make sure your payment will fit into your budget with room to spare.
3. Use the Largest Down Payment Possible
The more you can pay when buying a vehicle, the less you’ll have to finance. If you’re facing a poor credit score, the financing company could require a large down payment before offering the loan. As a rule, you should attempt to pay at least 20% of the sticker price of the car when you buy your next vehicle. Depending upon the interest rate, for every $1,000 you pay in your down payment should reduce the monthly payments by as much as $20. If you can put $5,000 down on a vehicle, that’s $100 in savings every month.
4. Timing is Necessary to Get the Price Lowered
Even though some dealers tell you they don’t negotiate the price of their vehicles, if you catch a salesperson at the right time, they might bend this rule. Although it might take a few trips to their sales manager to get the price where you want it, buying a vehicle in the latter months of the year or at the end of the month could benefit you. This is when salespeople are trying to make their quotas and need those last-minute sales to get the job done. This might be one of the most important car loan tips you’ll read.
5. Don’t Allow Everything to Go Into the Car Loan
What part of your new vehicle do you want to finance? Even if you’re not adding a down payment to the vehicle, it’s a good idea to cover the taxes, fees, and registration costs out of pocket. Remember, everything that goes into the loan is financed. Do you really want to pay interest on your vehicle’s taxes? This might be a small item, but it could add up to hundreds of dollars in savings over the life of the loan.
6. Check Out Refinancing Options
While it’s one of the top car loan tips, it’s not something you’ll need to do until you’ve had your vehicle for a little while. If you secured your loan with a low credit score and you’ve since raised that score into the good category, it might be time to try and refinance your loan. The process of raising your score typically takes a couple of years, but the refinanced loan could result in money saved over the rest of the loan term because you were able to reduce the interest rate.
Bonus: Don’t Go to the Dealership Desperate for a Car
It does happen, and it’s one of the worst feelings you’ll ever have. If you’re old car finally gave up the ghost, you’re stuck for a ride. When you go to the dealership, don’t tell them how desperate you are or let on that you need any car right away. Instead, go in with the same confidence you would if you had a car you loved and only wanted to see what’s available. Treat this like window shopping and take your time getting the car that you want, not the one that the dealership wants you to have.
Will these car loan tips help you when it’s time to buy your next car? Hopefully, with these tips, you can have a loan that works for you and offers the shortest term.
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