Quick Guide to Auto Financing
So it’s time to buy a car. Whether it’s brand new or just new to you, this is a big-ticket purchase that many folks can’t pay for upfront. That’s where auto financing comes in — a fixed-rate loan secured by a vehicle title. Most car dealerships have partnerships with banks, credit unions, or other lenders to offer you financing when you’re negotiating the terms of your purchase. But you can also secure financing on your own to ensure you’re getting the best deal possible.
Budgeting for an auto loan
Before buying a car, it’s necessary to determine how to pay for it. If you’re like many people, you’ll end up taking out a loan and making monthly payments for a set amount of time. An important first step is to figure out what you can afford every month. Examine your monthly expenses and calculate the maximum amount you can spend on a car payment. Once you have that number, ask yourself how long you’re able and willing to pay for a car. Car loan terms usually run from 36 months to 84 months, and the longer your loan term, the more you will pay in interest over the life of the loan.
Other costs you need to consider include registration, taxes, insurance, fuel, and maintenance of the vehicle (regular and seasonal). Once you’ve accounted for the essential costs, look for cars that are at or below your price point. You may still have to negotiate, but at least you have your bottom-line number and know what you can afford.
Explore your options
It’s beneficial to check out your auto financing options before you even walk into a dealership. You should shop around for a loan, just like you would shop around for your car. Banks, credit unions, and online financial services companies can provide information on rates and terms you’re eligible for, so you have that insight before negotiations begin. You may opt to get pre-approved or pre-qualified for an auto loan before you shop for a car. That allows you to start shopping with that amount and interest rate in mind — and they may be matched or even bettered by the dealership.
It’s also important to know your credit score and how that will translate to an interest rate on a car loan. The dealership will let you know what options they have available to you through their financing partners, largely based on your credit score, and then you can decide which terms are best for your situation. Make sure to ask questions about the process and fine print, that all fees are disclosed, and that you understand them before you agree to any auto financing arrangement.
Information you’ll need
When you get ready to buy a car and/or apply for auto financing either through the dealership or another lender, you’ll need to have certain information handy. Here’s a list of documents and personal details you’ll likely have to provide:
√ Full name and date of birth
√ Social Security Number or ITIN
√ Current and previous address (may need a piece of mail like a utility bill as proof)
√ Current and previous employer
√ Income sources and amounts (may need a copy of your paystub)
√ Driver’s license
√ Proof of insurance
√ Title and registration of the car you plan to trade in
√ A personal or cashier’s check for the down payment
Down payments and trade-ins
Making a down payment on a car is a good way to reduce your future monthly payments. The more you can save up to pay for a car when you purchase it, the less financing you’ll need from a lender and more money you’ll save overall. You can also trade in your current vehicle for an amount that will be used to purchase your new car. Be sure to research trade-in values for your current car beforehand to get the best possible offer from the dealership. Edmunds and Kelley Blue Book are two great places to start, and both free tools are available online. Your car’s value will depend on its make, model, mileage, age, wear and tear, ownership history, any repairs or upgrades made, and current market pricing.
Be aware: if you still owe money for your current car, you may not get much for a trade-in, or you may even owe more than the trade-in value of the car. If your vehicle isn’t paid off, make sure you know how much you have left on the previous loan.
Do your research
If you want the best deal on your next vehicle, doing upfront research is key. Putting in a bit of time before you start shopping could save you a great deal of hassle and money later on. Whether you choose new or used, it’s important to figure out which car and features are going to serve your needs best. Be sure to check into safety ratings and reliable reviews to help you compare the different makes and models of the vehicles you’re interested in.
Pricing can vary a lot on used vehicles. Looking into fair market value based on age, mileage, and condition can be done online through various websites. If you’re looking to buy a new car, it’s also important to consider the vehicle’s long-term value. Some brands retain their value over time better than others. Be sure to check several different dealerships and seek out the ones with a good reputation for customer service. By taking steps ahead of your actual purchase, you can be better prepared to avoid an impulsive mistake.
Know when to walk
It’s important to be patient and stick to your budget while shopping for a car. When you get to a dealership lot, it’s easy to be talked into buying a newer or more-equipped model than you bargained for. But remember that inventories are constantly changing, so if one dealership doesn’t have what you want at the price you can pay, then you may have to wait or try another dealership. It’s easier than ever to research online and compare prices and features on different cars. Be aware of upselling tactics as well, like coatings or unnecessary vehicle add-ons. Don’t forget to consider extra costs like a car warranty and how much that can add to the monthly payment. Remember, it’s OK to say no, and it’s OK to walk away from a deal when it doesn’t work for you.
If the original terms of purchase on your vehicle were not ideal, consider a refinance. Refinancing your car loan can help you get a lower interest rate and payment or help you pay off your car loan sooner. With a refinance, you get a new loan to pay off the previous one. If you have worked to boost your credit since the time of the original auto loan, you could secure better terms and save money on your next one. You may also be able to accept a new, higher loan amount that lets you both repay the prior debt and pocket some extra cash. Be sure you understand the terms of the new loan and how it fits into your budget and financial goals.
If you’re looking to finance a vehicle or take out an auto equity loan for refinancing, Lendmark Financial is here to help. We can walk you through your available options and answer any questions you may have. Get started on your online auto loan application today.