It’s important to remember that a car is not an investment. It will depreciate. This is why you need to pay as little as possible for one. Here are some smart ways to save money if you absolutely need to finance a new car.
Credit Check
Check your credit score and report before you get a car loan. If your credit isn’t great, you’ll get poor terms on your loan and pay too much interest. If possible, wait and work on your credit score for six months before you apply for a loan.
Quote Check
Don’t accept the first quote you get. Check with national and local banks, credit unions, and online lenders for quotes so you have options that you can compare. If possible, get pre-approved, so you have a strong bargaining chip against the dealer’s quote.
Term Check
Shorter loan terms carry lower interest rates, but you have to pay higher monthly payments. And this is a good thing. The sooner you’re debt-free, the better. The longer the loan term, the more you pay in interest even if the monthly payment is lower. Ideal term? 36 – 48 months.
Down Payment Check
Save and put about 20% of the car’s price as a down payment. You’ll borrow less, pay less interest, pay less for the vehicle, and be debt-free sooner. You’ll also get better terms on the loan. Don’t let the salespeople convince you otherwise.
Tax Check
Pay for any sales tax, registration fees, documentation fees, and any extras like an extended warranty with cash. Do not roll them into your loan. There’s no point increasing the amount you’re borrowing and paying interest on those things.
Gap Insurance Check
People buy gap insurance because they’re afraid that if the car gets totaled, they’ll still owe money on it. If you absolutely need to buy gap insurance, check with your auto insurance agent and shop around for options. The dealer’s offer is likely to be expensive.
Refinance Loan Check
It’s possible that you may have already gotten stuck with an awful car loan. But if you have good credit and a car that’s not too old, you can refinance your loan. Use the same tips to get a low term and low-interest rate.