A Guide Through the Auto Financing Process
Knowing every detail about the vehicle you want to buy is important, but how much do you know about financing it? Don't get caught off-guard when you visit a dealership. There are a variety of options available for financing, so doing your homework is the key. Here are a few things to do before you buy that will help you avoid costly surprises:
Step 1. Determine the Amount You Want To Borrow
Decide the total amount of money you can afford to spend before you start looking. You can measure the affordability of your vehicle purchase by using a payment calculator and creating a monthly payment budget for yourself.
Step 2. Decide the Length of Loan You Want
Generally, the lengths of most new-car loans are in the range of five to six years, with longer ones available. You can reduce your monthly payments with a longer term; however, you end up paying more in financing costs in the end. Zero-percent financing is usually offered in shorter-term loans, making the monthly payments higher but the total less.
Step 3. Stay Within Your Price Range
Choose a vehicle that won't over-extend you financially, either with the initial down payment, the monthly payments or the costs of insurance and operating expenses. Also, take a look at the J.D. Power Quality Ratings for the vehicle of your choice -- higher-quality vehicles do better at retaining their re-sale values and typically last longer, as well.
Step 4. Don't Forget Extra Expenses
Be aware of any additional costs associated with your vehicle, including projected fuel, maintenance and insurance costs. You can view the cost of ownership for your new car and see how it rates in its class before deciding to buy.
Step 5. Shop Around
Check multiple dealerships and online lenders such as LightStream, an online lending division of SunTrust Bank, to secure the best deal available on both the vehicle and the interest rate on the loan. Going to a dealership with your own financing makes you a cash buyer, even though you're financing the deal through another source, and simplifies the entire process.
Step 6. Know Your Credit
Get a copy of your credit score and be prepared to have your credit history searched. This puts you at an advantage when it comes to the finance rate you are being offered, and it helps you avoid unpleasant surprises. Preparing ahead of time for financing is the key. The interest rate you pay on your car loan is added to the bottom line -- treat it as another part of the negotiation process when buying a new car and you will gain an important advantage in the process because you will be better-equipped to deal with the realities of financing.