For most of us, financing a car is something we'll need to do at some point. But no matter if you are purchasing your first or fifth car, the process can be scary. In the ever-changing realm of auto financing, there are some strategies which remain constant. Here, we map out some tips to help you navigate the process.
Some Key Auto Financing Tips
The first tip in any car buying situation should always be to know your credit. Knowing where you stand can help you begin your search for auto financing. If you know before you go to a bank or dealership, it can save you both time and money.
- Vehicle Choices – It is a good idea to decide what type of vehicle you are looking for before you head to a car lot. Keep your needs in mind and identify any features that you must have. Don’t be swayed into choosing more car than you can afford. If you are looking for a quality vehicle that is relatively new, certified pre-owned (CPO) vehicles are often a good option. These vehicles are a good middle ground between new and older model used cars. A CPO car is a recent used vehicle that meets certain requirements set by the automaker. These typically include age, mileage and condition restrictions. CPO cars usually undergo inspection and refurbishments and come with some type of manufacturer-backed service contract.
- Manageable Terms— Try to keep the amount of time you are paying on a loan as short as possible. These days, it's not uncommon to see loan terms stretching to 72 or even 84 months, but you should aim for a 48- to 60-month term, if possible. Though it might seem reasonable to make smaller monthly payments, stretching the term could cost you. The longer the loan term, the more interest will accrue. This means less of your payment is going toward the loan balance, leaving you upside down longer. When this happens, you owe more on the loan than the car is worth. This can lead to problems when you want to refinance, sell, or trade in your vehicle. Also, your vehicle's warranty is likely to expire way before you’ve finished paying a long-term loan.
- Interest Expectations— The first thing borrowers often want to know is what their interest rate will be. Many factors go into determining this, but the bottom line is that interest rates are based on risk. The first thing lenders look at is your credit score. Typically, the higher your score, the lower your interest rate. For people with impeccable credit, this sometimes means they may qualify for zero percent financing. However there are more factors that determine your rate. These include where you live, the lenders’ programs, the Federal Interest Rate, and the vehicle you choose. A good tip: have at least enough money to cover tax, title and license fees. Financing an amount less than a vehicle's value can result in a better interest rate.
- Down Payment Prep— Whatever your credit situation, being prepared with a down payment will help. From a lender’s point of view, the more money you initially invests in your purchase, the more likely you are to continue making loan payments. More to the point, a down payment is always helpful, especially if you're facing credit challenges. If this seems overwhelming, don’t let it bother you. In subprime financing, 10 percent of a vehicle’s selling price or $1,000 down, whichever is less, is typical. Ultimately, a down payment will reduce the cost of your loan.
- Insurance Influences— You should also consider the other factors involved in vehicle ownership, like insurance. The type of vehicle you purchase will impact the rates you will pay down the road. From an insurance standpoint, everything from your credit score, the price of the car, safety ratings, the likelihood of the vehicle being stolen, and repair costs come into play when determining rates. Speaking of repair costs, there's always the chance your vehicle could be declared a total loss. This is why it might be a good idea for you to carry GAP insurance. It covers the “gap” between the actual cash value of your vehicle the insurance company will pay and the balance that you still owe on the loan.
The Bottom Line
Whether you have excellent credit, bad credit or no credit, you will have many things to consider when you are financing a vehicle. If your credit leads you into the landscape of subprime financing, Auto Credit Express can guide you through the process. Let us help you take the first steps toward financing your vehicle by filling out our auto loan request form now.