Choosing the right auto loan can seem almost as complicated as selecting the right home mortgage. Because of this fact, consumers may find themselves accepting whatever terms are offered, only to realize later that they may be paying too much. If you are currently shopping for a vehicle or plan to do so soon, here are some tips to help you get a better financing deal.
Understand the importance of depreciation
Even though a car purchase can cost tens of thousands of dollars, it is important for consumers to understand that purchasing a car is not an actual investment. Investments are things that are expected to go up in value, like real estate, stocks, and precious metals or jewels.
Instead of going up, new and used vehicles depreciate very quickly, especially during the first few years of ownership. This is why it is very important to make sure that you are shopping for a car you can afford to own, instead of the car you dream about driving.
To help you determine how much car you can afford to own, plug your information into an online affordability calculator before beginning to shop. You can use the information you receive to help determine the price range you can afford to shop in.
Understand the impact of credit scores
Once you know how much you can afford to spend, the next step is to look for the most affordable terms for the loan. The most important term is, of course, the interest rate you will be charged for the loan. Your credit history will be the most important factor in determining the interest rate your are offered on a vehicle loan.
While it is usually possible to obtain a vehicle loan, even with past credit problems, buyers in this situation are charged a much higher interest rate than those who have very good or excellent FICO scores. Since the interest costs are an important part of determining the total cost of your car purchase, taking time to look at your credit score and take steps to improve it before applying for a loan will help you get a better interest rate and save money on the total cost of purchasing your next car.
Understand the total cost of car ownership
Consumers sometimes struggle with their car payments simply because they overlooked the other ongoing costs of vehicle ownership. Mandatory insurance costs, along with licensing fees, taxes, parking, and maintenance costs can quickly make meeting the monthly car loan payment amount difficult.
To avoid getting into a vehicle loan situation that will ultimately become unaffordable for your situation, use the total cost of owning a car as your guide for the amount you can afford to spend.
When shopping for an auto loan, working closely with a trusted lender or vehicle financing representative can help you save money and get the best repayment terms.Share