10 Great Tips on how to Navigate Through the Car Loan Maze
Maqueda "Maq" Hooks, Maq as known by friends and co-workers, is a
recent graduate of Jones International University. Her knowledge comes
mainly from a mother’s love of knowledge, research and school as well
as a father who has worked in automotive industry for over 30 yrs.
Maq offers 10 great tips on how to navigate through the car loan maze.
1. It’s easy to persuade yourself to spend more than you planned once you get to the dealership, so plan ahead. Make a budget with all your income and expenses and consider what monthly installments you will be able to afford and are willing to pay. According to this information you’ll be able to select which payment schedule best suits your needs when you get loan quotes from each of the lenders. Set a reasonable price limit ahead of time and stick to it. (All of your car-related expenses, including gasoline, should cost a maximum of 20 percent of your monthly net income.)
2. Determine your financial situation - Find out your
credit rating. Arm yourself with this information you should access
your credit report and know what your FICO score is. You can request a
free copy of your credit report (under Federal law ) by visiting www.annualcreditreport.com/ or going to www.myfico.com which
offers online access to an individual's credit profile and FICO score,
with a personalized explanation analysis. This way you'll know exactly
what the lender is looking at, additionally, if there are any errors,
you can inquire about them beforehand.
3. Unlike a home mortgage, in which people look long and hard at what they will be able to pay over the next 10 to 30 years, car buyers do not always take such payments into careful consideration. "It is only for three years" is a familiar excuse for not evaluating the impact of such payments on your budget. Another way to save is to have reasonable prices fixed firmly in your mind. Before buying a car, know the overall price of the car in terms of the APR, consider how much money you can put down, how much you can afford to pay on a monthly basis and the length of the loan. Pricing information and reviews are available at AskPatty.com and Consumer Reports.
4. It’s also becoming common for dealerships and other lenders to offer six- and even seven-year loans with low monthly payments – but watch out. The car could depreciate in value dramatically well before you pay off that loan, and the warranty is likely to expire long before the car is paid off. If you are focused more on low monthly payments than on the price of the car, you will be paying more in the end. So you'll want to pay off the loan in a short time period. While the monthly payment will be higher in the short term, the interest payment will be lower. Conventional wisdom says that a new-car purchase is the largest transaction anyone will ever make, next to buying a new home. But unlike real estate, which is almost assured of appreciating in value over the life of a home loan, cars and trucks depreciate the moment they are bought. So while it makes no financial sense to extend the life of the loan longer than absolutely necessary.
5. It’s a common mistake to think that the dealership needs to arrange your car loan for you. Many people use credit unions for automobile loans, while others find good deals from their local banks. The key is to investigate all potential lending options, including the dealership and online. AskPatty.com can help you make financing comparisons, and in some cases, secure loans. But buyer beware check any lender out with the Better Business Bureau http://www.bbbonline.org/ or if using a financial institution make sure it is FDIC-insured by going to http://www2.fdic.gov/idasp/main_bankfind.asp.
6. Not reviewing the fine print. Many dealers will give you a choice between, say, zero-percent financing or a rebate. Don’t immediately assume that the zero-percent loan is the best deal. All incentives are price reductions offered by the factories either to increase sales on current slower-sellers or to reduce excess inventory. If you use the dealership make the dealer chart out both scenarios for you. The rate is only part of the equation. You need to know how much you'll be putting down and the terms of the loan before making a decision. Insist that the car dealer break the deal down it’s much too easy to get confused otherwise. Also find out whether you will be hit with any fees if you pay the loan off early.
7. Are they willing to work with you? You may have a lot of questions for your lender, or you may have very few. Either way, your lender should be willing to spend as much time as necessary answering your questions and explaining their services. They should always return your calls promptly, and they should be willing to meet with you to discuss your loan. If a lender seems like they have better things to do during the application process, then they probably won’t be much help once you’re a customer.
8. Once you begin negotiating, you are not obliged to stay with that
company or lender. If you do not like the offer or the manner in which
the negotiations are headed, walk away. Being quick to accept any
financing offer could be the kiss of death to your hard earned money.
Following your emotions. Make sure that you have done your research up
front, and you know which car you want and what you are prepared to
pay. Do not cave in if the lender pushes or will not waver on price.
9. Unconventional but helpful
Family help. If financing is a stretch, your family may loan you
money or co-sign for a loan. If they do, make sure all parties are
fully aware of every detail of the loan and the possibilities should
circumstances change or things go wrong.
Home equity loan. You'll get a good interest rate and the payments
will be tax deductible. But be sure such a loan won't leave you in any
danger of losing your house. After all, it's just a car.
10. After you have done all this and before shopping I say eat and get a good night sleep. Why you may ask? When you consider how much a visit to a car dealership can wear you down from the looking for a vehicle to the progress of having a contract drawn up, the experience can last up to four hours which, by the way, most runners can do a 15k marathon in that time.