BUYER’S GUIDE: How to Finance a Car

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You found the car of your dreams, but now you have to find a way to pay for that sweet ride. This means you’ll be taking out a loan and the terms you get could have a big effect on that monthly payment. We all tend to look at the cost of a car as the sticker on the window, but financing plays a big part in the overall cost. You can save thousands of dollars with careful financing. These tips will help make sure you get the best deal when you sign on the dotted line.

shutterstock_280796339Know Your Credit Score

It’s worth checking your credit score when you start car shopping. Those with good credit will get the best deals, but even those with bad credit will likely still be able to get a loan. The difference is in the interest rate so you’ll be paying more for the same loan if your credit is bad. Knowing where you stand when you walk into the dealership could avoid an unpleasant surprise and will let you budget for a potentially higher monthly payment.

shutterstock_128318117Shop Around for Financing

Most people check out more than one dealership for their car and they should be shopping at more than one place for the car loan. The dealer is only one option and their rates aren’t always great if your credit isn’t good. Before you even set foot in a dealership, check the rates at local banks and especially members-only credit unions. Saving a few percent on the loan can save thousands of dollars over the long term. It might be worth opening an account at a new institution to take advantage of a better interest rate.

shutterstock_273084119Keep the Loan Term Short

The term, or length, of your loan can reduce the amount of interest you pay overall. Spread your car loan out over 7 years and you’ll be paying more in the end than you will with a 3- or 5-year loan. The shorter the loan, however, the greater the monthly payment. It’s a balancing act. Once you know how much you can afford to pay each month, take out the shortest loan term that keeps you monthly payment at that number.

shutterstock_132478784Put Money Down

It might be tough to come up with a down payment for a car, but at least it’s not as hard as coming up with one for a house. You can get a car loan with no money down, but it’s not your best bet. Not only will a down payment reduce your monthly payments, but it will make it less likely that you’ll owe more than your car is worth if you’re suddenly forced to sell.

The process of buying a car is time-consuming and figuring out financing is just as important as deciding on which car you want. It’s not fun, but taking the extra time to secure the best loan possible will keep more cash in your pocket to fill up that tank and go for a ride.

Nicole Wakelin

Nicole Wakelin