If you need to borrow money to buy a car, it pays – and it pays well – to be prepared.
The following tips to finance a car all have one thing in common. You need to do your homework before you walk onto a car dealership lot. Keep these questions in mind the next time you are on the market for a new vehicle.
What’s Your Credit Score?
Your credit score will determine the interest rate for the loan that the car dealership will offer you. As you negotiate with the salesman and his manager, the rate they’ll quote you is for buyers with excellent credit. Find out if you have excellent credit by contacting all three major credit bureaus -- Experian, Equifax and TransUnion -- to see your credit score and what's on your credit report. Dispute whatever you think is inaccurate and pay off debts that are suppressing your score. As painful as this may be to do, postpone your search for a car until after you do this. It can save you thousands of dollars in interest payments. (To learn more, see Credit Report.)
Who Can Lend You Money?
The dealership isn't the only place that can lend you the money you need to buy your car. Get quotes from a bank or a credit union or from online websites. If you enter the dealership with a financing offer in hand, you'll know if the dealer is offering you a fair interest rate, and you can focus on negotiating the price of the car and not worry about the interest rate.
Keep in mind that dealers don’t like you to obtain financing beforehand because they can make more money financing a car than selling one. Whatever you do, don’t tell the salesman that you have lined up financing. The salesman will tell the sales manager who may not offer you as good a deal on the price if he knows the dealership isn’t going to make any money on financing.
Also you should know that outside credit doesn't prevent you from taking advantage of dealership incentive offers. Very often you can even take a dealer's cash-back rebate and apply it to the down payment on a loan you get from someone else.
Can The Dealer Beat The Best Offer?
Even if you get a great quote from someone else, listen to the dealer's offer. Most dealers really want to sell cars, and very often they’ll sweeten the pot by offering low finance rates or even interest-free financing. Keep in mind that the dealer may offer you a better rate than your bank, credit union or website.
Are There Cheaper Cars You Are Not Considering?
You may be surprised to find a lot of great features, such as leather seats, navigation systems and excellent radio systems, on affordable, fun to drive cars. And if you buy a less expensive car, your monthly payments will be lower, allowing you to save more money or spend it on something else.
Should You Negotiate A Deal Based On The Total Price Or On The Monthly Payment?
Negotiate your financing deal based on the total price of the car. If the salesman asks you what payment you can afford, tell him not to worry about the monthly payment. Trying to get you to agree to a monthly payment is a sneaky way for car salesmen to make you pay for the car. Changing the subject won’t work on a good salesman so it’s best to firmly state that you want to negotiate based on the total price of the car.
If You Borrow From The Dealership, Can You Fudge The Facts On Your Loan Application?
Never do this. If you do, two things can happen and neither of them is good. The sales manager will figure it out, and he may not give you a loan, or he may offer you a loan with a high interest rate because he feels like he can’t trust you. The alternative option is that the sales manager won’t figure it out, and you’ll end up with a monthly payment that is more than you can afford.
The bottom line is that most car salesmen and sales managers aren’t evil people who are out to rip you off. However, keep in mind that they are business people who are out to make the most money for themselves. Protect yourself by doing your homework before going to the car lot.