Do you want to buy a car? Aside from paying in cash, you have other options. Whether you’re financing your car or leasing it, here are a few things to keep in mind.
Before buying or acquiring a car in the leasing mode
- Get a copy of your credit report before you visit the dealer. Visit AnnualCreditReport.com or call 1-877-322-8228 for a free copy. Your credit report contains information that affects your chances of getting a loan, and how much you’ll have to pay in interest to borrow money.
- Before you visit the dealership and before you discuss financing, get a written turnkey price for the car you’re interested in. That means you have to ask the dealer to send you the full price of the car, without calculating the financing, including fees and taxes. Having this information in writing before you go to the dealership can help you compare other dealership offerings apples to apples and more easily spot extra and additional charges the dealer may add to your deal, and can help you focus your attention on the total cost (not just the monthly payment).
- Know what the total cost is, don’t just look at the monthly payment. Low monthly payment offers can be tempting, but don’t focus solely on your monthly payments. For example, loans with lower monthly payments often have longer terms and higher interest rates, and that will add significantly to your total cost. When calculating how much you can afford, use the Budgeting Worksheet as a guide to make sure you have enough income to cover your monthly expenses and your car payment.
- Consider saving for a down payment first. The down payment reduces the amount of money you have to finance or figure into the lease agreement. That will reduce the total costs of the financing or the leasing agreement.
- Ask if you will need a co-signer. If you don’t have a strong credit history, you may need a co- signer for the financing or leasing agreement. The joint signatories assume the same responsibility with respect to the contract. If you can’t pay what you owe, your co-signer will have to. Any late payment will harm your credit and that of your co-signer.
- Find out the trade-in value of your old car. Consult the National Automobile Dealers Association (NADA) guidelines and the Edmunds and Kelley Blue Book . This information could help you get a better price from the dealer.
- Wait to discuss trade-in until after you’ve negotiated the best possible price for your new car. You want to be sure the dealer isn’t going to adjust the car’s selling price to make up for a generous trade-in offer on your used car.
- Find out how much you owe. If you still owe money on your car, trading in your used car as a trade-in may not help. If you owe more than the car is worth, it is said to have a negative equity . If you want to trade the car in, ask what effect the negative equity will have on your new financing or leasing agreement. For example, this could increase the amount you are borrowing, the length of your financing agreement, or the amount of your monthly payment.
You have two financing options: a direct loan or dealer financing .
Direct loan: means you are taking a loan from a bank, finance company, or credit union. When you take out a loan, you agree to pay back the amount financed, plus a finance charge, over a set period of time. Once you’re ready to buy a car from a dealer, you use this loan to pay for it.
With a loan, you can:
- Obtain the credit terms in advance. If you get pre-approved for financing before you buy a car, you’ll be aware of the terms, including the annual percentage rate (APR), the length of the loan (number of months), and the maximum amount you can borrow. Use this information to negotiate with the dealer. The APR is the cost of credit in terms of an annual basis. This rate depends on several factors, including your credit score, the amount of your loan, the interest rate and fees you are being charged for the credit, and the length of your loan.
- Comparison between different dealers. With pre-approval in hand, it will be easier for you to ask dealers to provide you with written turnkey prices for the cars you’re interested in, allowing you to negotiate the best price and financing without having to lose money. time at the premises of different dealers.
Dealer Financing – Means you are applying for financing through the dealer. You and the dealer enter into a contract that states that you buy a car and agree to pay, over a period of time, the amount financed plus a finance charge. Typically, the dealer sells the contract to a bank, finance company, or credit union that will manage the account and collect payments.
Dealer financing can offer you:
- Multiple financing options. Since the dealership may have relationships with a wide variety of banks and finance companies, you may be able to access a wide variety of financing options. But keep in mind that the dealer usually makes a profit on the financing and may not always offer you the best deal for you.
- Special programs. Dealers sometimes offer manufacturer-sponsored incentive programs or low-rate programs. These programs may be limited to certain cars or have special requirements, such as a higher down payment or shorter contract length. These programs may also require a high credit score. Find out if you qualify.
Find the best financing deal
Compare financing offers from various lenders and the dealer. Remember that you don’t have to focus solely on the monthly payment as the total amount you end up paying will depend on the negotiated price of the car, the APR and the length of the loan.
Many lenders offer long-term loans, such as 72 or 84 months. Although these loans can lower your monthly payments, they may have high interest rates. And the longer the loan period, the more expensive the loan will be overall. Cars lose value quickly once they leave the dealership; So with long-term financing, you may end up owing more than the car is worth.
Some dealers or lenders may require you to purchase credit insurance that will cover your unpaid balance in the event of your death or disability. Before you buy it, consider the cost and whether or not it’s worth it. Review your existing insurance policies to avoid having duplicate benefits. Federal law does not make credit insurance mandatory . In fact, the law prohibits a lender from deceptively including credit insurance on your loan without your knowledge or permission. If your dealer requires you to purchase credit insurance to finance your car, it must be included in the APR.
Be sure to ask the dealer questions about the following:
- The additional or complements.The extras are not free. They are extras that you buy and finance along with the car. Some of the more common add-ons are gap in coverage policies, window glass etching, and extended warranties and service contracts. [Link to revised article.] It’s okay if you say no to extras and ask for the price. It’s not okay for dealers to add extras to your offer or lie to you about it. Know exactly what you are buying and protect yourself. Ask the dealer to list the prices of all the add-ons he proposes before you visit the dealer’s location. If you finance the purchase, you’ll want to know how much each additional will cost you over the term of the loan. Ask if there are any limitations or conditions on add-ons. They may not cover what you expected. If it’s something you don’t want or need, say no.
- Incentives granted by the manufacturer. Your dealer may offer you manufacturer incentives, such as lower financing rates or cash back on some makes or models. Be sure to ask your dealer if there are any special financing offers available for the model of car you’re interested in purchasing. These discounted rates are generally non-negotiable and may be limited by your credit history. Ask the dealer to give you the answers in writing.
- Sales, discounts or special prices. Ask in advance if you qualify for available offers. Dealers that offer rebates, discounts or special prices must clearly explain what the requirements are to access these incentives. Please check carefully if restrictions apply. For example, sometimes you have to be a recent college graduate or service member to access these deals, or they might apply only to specific cars. You should not assume that rebates are already included in the price or terms offered. Remember that it is in your best interest to have your questions answered in writing.
- Your Annual Percentage Rate (APR). You can negotiate the APR and payment terms with the dealer the same way you negotiate the price of the car. The APR you negotiate with the dealer usually includes an amount that compensates the dealer for handling the financing. Negotiations may take place before or after the dealership accepts and processes your credit application.
Ask questions about the terms of the contract before you sign it. For example, before you drive away from the dealership, ask, Are the terms of the contract final and fully approved? Does the price on your contract correspond to the price the dealer sent you in advance? And if the dealer tells you he’s still working on approval, that means the deal isn’t final yet. Consider waiting to sign the contract, and stick with your current car, until the financing is fully approved.