Cars have become an integral part of our lives, and, more than before, buying one has become easier. There are now many car loans on offer, making the process of purchasing a car pretty straightforward. However, there are a few things you need to keep in mind when considering auto financing. Buying a car is a big decision. Getting one is probably the second most expensive purchase for most people, next to buying a home. It is therefore very important that you get yourself the best deal on financing. Here are four car financing tips that you will find extremely helpful.
Check your credit score
Checking and understanding your credit report and score is of great importance before getting a car loan. You see, unlike in mortgages or when applying for a credit card, bad credit is not a hindrance when you want to get a car loan. Why is that? Banks know that is fairly easy to repossess your car if you default. And when you have shaky credit, you will be too excited about getting the car loan that you won’t bother asking for lower rates.
Check your credit reports well before time and fix any mistakes. Remember that the car loan you will receive will be based on your score, and mistakes will make the loan more expensive.
Shop around for most favorable rate
You take time to shop around to get the best deal on your new car, so why not do the same when it comes to getting the financing for it? You will be surprised at how many people go to dealers without doing due diligence. Dealers are not your comrades; they are in the business of making as much money as possible from you. They have ways of sneaking in all sorts of fees and charges especially when you are getting credit from them.
In almost all cases, financing from a bank or credit union is cheaper than any credit offered by the car dealer. Resist the urge to test-drive without having nailed down your financing beforehand.
Go for short loan terms
Shorter loan terms typically have lower interest rates but the monthly installments are higher. That’s what you should go for.
Loans that spread out over six or seven years are quite tempting because the monthly payments are lower, but you will end up paying more in interest, meaning that you will have made your car more expensive than it should have been. Keep the loan term as short as you can afford. If possible, try to limit your car loan to four years or 48 months. The aim is to get out of debt faster.
Look for a car that you can afford
As mentioned above, cars are expensive purchases, so it is vital to be sure that are able to afford one. Also, a lender might turn you down if you are asking for too much. Remember that there are other costs that you will have to cater for even after handing the dealer his asking price. There is stamp duty, insurance, registration fee and some other little costs that add up. It is prudent to ensure that all cars in your household do not take more than 25 percent of your monthly income. Your calculation should factor in fuel, loan repayment, insurance and other operating costs.