Purchasing a vehicle is a major commitment for any individual so the process must be approached with caution and extensive research. Unless you’ve saved up thousands of dollars over the years, buying a vehicle will require some financing. Some people may try car title loans as their way to secure some cash for that dream vehicle. However, there are several other pathways to financing a car. Follow these basic steps so that you can buy that car and pay it off in comfort.
Start With Your Credit History
Before you shop for any vehicles, be aware of your financial and credit background. You’re allowed to access your credit history once a year for free. Three, credit reporting agencies carry your information with a score to match. Contact these agencies separately for your history, including:
Read all of the line items with care. Identify any items that are false or should be removed because of their age. Bankruptcies, for example, can be removed from credit histories when they’re about seven years old. A clear, credit history will make financing easier and more affordable.
New or Used Matters
You also need to consider if a new or used car is your goal investment. If you have a low credit score, a used car with a more affordable price might be easier to finance. Financing an expensive car that’s brand new can result in high-interest rates that make the vehicle unattainable for most budgets. When you have a high credit score, you have more flexibility between either new or used cars. Because lending to you is less of a risk, the interest rate should be low on any loan type.
Work With Your Bank
With an accurate credit history, it’s time to visit your bank. You have a standing relationship with this lender because of checking and savings accounts. They know your history of payments and deposits. With all of this personal information, your bank should be able to give you a relatively good deal on financing. They can find the cheapest loans from their options or contacts in the business. You don’t even need to have a car picked out yet. Give the banker a price range that you’re looking at, and this professional can match an interest rate to it wherever possible.
Speak With the Dealer
If you don’t want to work with a bank before shopping for a vehicle, local dealerships will always have some financing options. In fact, they prefer for you to work with them. You’ll normally see several financing options, such as:
- Zero-percent financing (on approved credit)
- Cashback bonus
- Factory rebates
All of these options can confuse the average consumer. Ideally, negotiate on a price for a particular vehicle first. With a solid figure in mind, speak to the dealer about the best options for your credit history.
The Zero-Percent Temptation
The temptation of picking a zero-percent car loan is understandable because you’re essentially spreading out the car’s cost over the years without any interest. However, the dealer won’t normally negotiate on the car’s cost with that financing selection. You’ll pay the full, sticker price. To further complicate matters, you may not qualify for the zero-percent loan because stellar credit is required. Ideally, choose the rebate or cashback option while financing the vehicle at another interest rate. You’ll save money by the end of the loan’s term.
Consider a Lease
Financing a car to ultimately own it is the goal, but some people may want the vehicle for a shorter time period. Finance a vehicle under a lease. These contracts are usually about three years long. Turn the car in at the end of the contract, and you can negotiate another vehicle. The lease only requires that you pay a fraction of the vehicle’s cost.
Deciding Between Term Lengths
Because you’re financing the vehicle at a certain interest rate, you’ll want to pick a term length that’s not too extended. You’ll simply pay more interest when the loan is finally completed. Pick a term length that’s between three and five years long. Extending the loan to 10 years will cost you about $4,000 or $5,000 in interest, which can often be half the cost of the car itself.
Bring along a loved one on your car-shopping trip so that you can have a different set of eyes on the vehicle and financing options. If it’s necessary to walk away from a negotiation, this friend can help you with that difficult choice. In the end, financing your vehicle can be simple when you understand everyone’s intentions and goals during the process.