How I Totaled My New Car Cravings In One Day
When the new car bug bites, it pays to take a drive down reality lane.
Tips to help you buy the right car with the right auto loan.
Anytime you sign a loan or lease for a vehicle, the lender should provide a Truth in Lending Disclosure. This is a legally required document that all lenders must give a borrower before they sign a loan agreement.
The Truth in Lending Disclosure tells you:
All these things matter greatly to your daily budget and overall financial health. You can also use this disclosure to execute some of the advice you’ll find below.
If you think the only thing your credit score affect in car buying is the interest rate, you’re wrong. A higher or lower interest rate changes the total cost of a car purchase. In addition, rate changes in auto loans affect the monthly payment amount, too. So, if your interest rate is low, you may want to put off purchasing until you can build credit.
Here’s a quick snapshot of cost differences between a prime and subprime $16,000 auto loan with a term of 60 months:
|Prime score (661-780)||Subprime score (500-600)|
|Total interest charges||$2,116||$6,838|
People often focus only on the upfront and monthly costs of an auto loan. But you need to consider the total cost of owning the vehicle, too. That means paying attention to things like:
If you buy a vehicle that doesn’t get good gas mileage, you may have a luxury car that sits in your driveway. Vehicles that wear out quickly and don’t have good resale value mean you won’t get much on the trade-in; you also may be back to purchase another car too quickly.
You also need to balance monthly costs and total costs on your auto loan:
Those no-money-down or 0% APR promotional offers that dealers advertised are meant to get you in the door. But they don’t always provide the best overall value. In most cases, you could get a better loan if you go to your bank, credit union or a preferred online lender.
Before you start to shop, hit up your favorite lender to find out what kind of auto loan you can qualify for through the; it’s basically the same as getting prequalified to buy a house. Then you go to the dealer in a much better position. Your lender will give you a lender-approved blank check or a coupon saying what you qualify to buy.
Now you can compare any dealership offers to the offer you have from your lender. Look at total costs and upfront costs, then choose the deal that works best for your finances.
Note that when shopping for auto loans, requesting multiple quotes within a short period won’t damage your credit. All the inquiries for that loan type will be consolidated into a single inquiry by the bureaus. This allows you to shop around for your loan without decreasing your credit score.
When you buy a used car, there are steps you can take to avoid buying a lemon:
A car is officially considered a lemon if it’s purchased with unreported defects. If the car is new, you may be entitled to a refund or new car. For used cars, the laws vary by state. Check with your state Attorney General’s office to get Lemon Law information that applies to you. You should do this and review it before you buy.
Car buying, like homebuying, is one of the few places left in U.S. marketplaces where you can’t afford to by shy about haggling. You never want to pay the asking price, whether it’s from a dealership or a private seller. You should know the value of the car you want to buy and how much other people pay these days.
If you aren’t comfortable negotiating on your own, take someone with you who is. Then learn from watching them. Failing that, make sure to check things like Kelly Blue Book or try apps like TrueCar. In the end, you can’t be afraid to walk away from a deal. That’s the number on rule in negotiating.
Some people just assume that leasing a car is better than owning. In some cases, it is; but it really depends on your situation. If you like to get new cars every few years and you drive either a fixed or limited amount, leasing may be for you.
Here are some downsides to consider about car leasing:
It’s important to note that a leased car doesn’t count as an asset. However, an auto lease often still counts as a debt. Unless you are within 10 months of full repayment, auto leases count against your debt-to-income ratio. So, getting a lease won’t help you avoid challenges caused by excessive debt.