Paying upfront for a new vehicle is usually not an option. This is why most buyers use financing, including financing offered by car lots, banks, credit unions or online lenders. The financing option you choose will impact what kind of vehicle you can afford and how much you end up paying for the vehicle.
It’s important to shop around to find a financing option that’s right for you. Compare loans and different lenders to find one that is affordable and that will provide you with a good experience.
Typically, having a good credit score will make finding affordable financing easier. Consider applying for a loan via a bank, credit union, or online lender instead of choosing the financing option offered by the car dealership, as these institutions are usually more affordable as long as you have good credit.
Finding an affordable loan is also easier if you have a trade-in or a down payment so that you don’t have to finance the entire cost. Ideally, your trade-in or down payment should cover 15% to 20% of the cost of the new vehicle.
The main thing to look at when comparing financing options is the total amount of the loan. You can use online tools to compare rates offered in your area and get an idea of how much a loan will cost you.
Look at these items when comparing auto loans:
- The APR or Annual Percentage Rate. The APR will impact the total amount you end up paying for the loan and for your vehicle.
- The duration of the loan. A shorter loan means you can build up equity in the vehicle faster and end up spending less on fees and interest. A loan with a longer duration means your monthly payments will be lower.
- Late payment fees. Ideally, you shouldn’t miss any loan payments, but it’s important to know how your balance will be affected if you do.
- Monthly payments. Monthly payments are important because you want to find a loan that’s a good fit for your budget.
- Insurance premiums. You should purchase enough insurance to cover the amount of the loan. Ensure you can afford the insurance premiums.
- The reputation of the lender. You’ll have a more enjoyable loan experience if you borrow from a company that has a good reputation, offers good customer service, provides you with an easy way to make your payments, and doesn’t make mistakes when processing payments.
- The terms of the loan. Read the terms of the loan carefully and look for additional fees, variable interest rates, and other details that weren’t mentioned by the lender.
Even if the dealership encourages you to take the vehicle, avoid taking it off the car lot until you have financing figured out.
Some car lots will let you drive the vehicle and offer conditional financing, which means the terms of the loan, interest, and payments can change once you have the vehicle. Securing financing before you drive the vehicle allows you to be in control of what you end up paying.
Following these tips will give you a more pleasing loan experience so you can spend your time enjoying your new car.