OWN Your Car Dealer & Get the Best Car Loan Deal on Your Dream Car
That pie-in-the-sky dream car you always wanted? It’s going to cost some down to earth (possibly big) bucks to get. Finding the right auto financing for you is critical to keeping that dream car from turning into a financial nightmare.
Quick quiz: Which is the best deal? 1.9 APR 5 year no money down? 5% APR 4 years? 0% APR 3 years? Admit it, you don’t even know what any of that stuff means, do you? But that’s OK. Most people are dummies when it comes to stuff like that, so relax and let us gently explain it all to you.
The goal of financing anything is to pay as little as possible (or, to put it another way, borrow no more than is absolutely necessary).
How to Take Charge of the Car Loan Process
1) Figure out how much you can afford to pay each month in car payments. Hint: as a rule of thumb, your monthly payments should be no more than 20% of your monthly take home pay.
Note 1: Want something like this? You’re going to need a bigger calculator.
Note 2: 20%? Really? Really. If you fail to make your monthly payments, repo man will come and take your pretty car and to add insult to injury, your credit score will tank.
2) Figure out how much you can afford as a down payment. Cost savings BIG TIP: pay as much up front as possible. The bigger the upfront payment, the less you have to borrow and that means lower monthly payments and less interest on the loan amount.
No, APR does not stand for “American Poetry Review.” It stands for “annual percentage rate,” and it determines how much interest you’ll pay on the money you’ve borrowed. The lower the interest rate, the better. How low can you go? As low as you want — it all depends on your credit history and credit score, and when it comes to your credit score, the higher the better. How high your credit score is, again, (mostly) up to you, a function of the financial choices you make. 850 is the top credit score you can have, but only Warren Buffett and Superman have credits scores that good.
Your credit score depends on your credit history. (AnnualCreditReport.com offers a yearly free credit history report from each of the 3 major credit reporting companies: TransUnion, Equifax, & Experian). While you can’t really know your exact credit score (that’s calculated at the time you borrow money and each lender has their own formula), you can make a pretty good guess by using this little credit rating tool.
Try to get pre-approved for a car loan with your bank or credit union. The reason is you’ll be negotiating with the dealer about your loan.
Your pre-approval will include the likely interest rates you’ll pay. This will force the dealer to offer you the same or better terms. Big cost savings TIP: check out peer-lenders (known as social lending). Peer-to-peer loans typically offer some of the lowest interest rates around.
What’s this “term length” thing? That’s the period of the loan, i.e., how long it takes you to repay it. Ideally, the shorter the term length, the less total interest you’ll pay (the monthly payment amounts, however, will be higher). However, as long as you can afford the higher monthly payments, don’t focus on the higher monthly amount – instead focus on the amount (in interest) you’re SAVING!
This is the sneaky-tricky step to protect you from that sneaky-tricky dealer. When he (innocently) asks you what monthly payment you’d like, say instead: “you know, what would be most helpful to me would be if you could tell me the rates and terms you can offer me given my down payment amount.” The dealer will hate you but no matter. If you’ve done the work in step 3, you’ll now have in hand a set of possible loans from which to choose the best one.
Let’s sum up
- Down payment: the more, the better
- Credit score: the higher, the better
- Pre-approval, good. No pre-approval, bad.
- Term Length: the shorter, the better
- When the dealer asks how much of a monthly payment do you want? Let’em come to you.
Any Questions? Ask’m below!