When you’re in the market for another vehicle, you’re probably going to need a loan. Keep in mind that any loan you get will be for the cost of the car and the added interest. Another thing to remember is that as soon as the vehicle is off the lot, it depreciates in the value.
Make sure to remember the three tips below to ease your car shopping experience.
Get Financing Outside The Dealership
Many borrowers go to the dealers for their financing before they think if it’s a good idea or not. That’s because dealers dangle special promotional financing in front of consumers, and they hope to take advantage of those deals.
While you may have a good financing deal with the dealers, especially if you have very good credit, you’re only helping them to make a profit from it. They may not always offer the best terms and rates.
Rather than going straight to the dealer, take the car price you want and explore the various options other financial institutions have to offer – banks, credit unions, etc. Look at the interest rates offered, loan length, prepayment penalties, loan origination fees, etc. If you can get a great deal outside the dealership, go for it.
Borrow Just The Minimum
When borrowing for your vehicle, be sure you buy only what you can afford. According to a recent report from Experian, the new car borrower financing was $31,445 in the first part of 2018. For many people, they are borrowing more money than they actually make in a single year.
If you factor in the average 5.7 percent interest rates that means monthly payments for new vehicles have reached $523. Instead, consider a new used car with a lower sticker price, lower interest rate and lower monthly payment.
Avoid Stretching The Loan
Another disturbing trend is how long borrowers are taking loans for their vehicles out for. The average length is 69 months, but many people are opting for 72-month loans. However, some are even pushing the loan lengths to 85 and 96 months.
The average time a person wants a new vehicle is 5.7 years, which means you’ll still be paying on your vehicle by this time or you’ll want a new one as soon as the old one is paid off.
Also, the longer the loan is, the more interest you’ll pay for the vehicle.
So, the shorter your loan is, the better off you are. You’ll save yourself extra money that could be applied to another vehicle in the next few years.
Yes, you want to have a good, reliable car but you should still be smart about the financing for one. Be sure to get a good deal, buy the least expensive vehicle you like and finance with the shortest loan possible without breaking your monthly budget. Do this, and you’ll be in great long-term shape.