Buying a car- Financing:
There are three important things to remember regarding financing the purchase of a car:
1. Arrange financing before you visit the dealership.
2. Arrange financing before you visit the dealership.
3. Arrange financing before you visit the dealership.
If you have not understood the subtle message indicated above, we repeat it now: it is very important to arrange financing before starting negotiations. Many lenders will prequalify you for a certain loan amount based on your income and credit history. You will know exactly what kind of car you can afford and you will be able to compare the financing obtained with the one offered by the dealership.
The value of a new car drops dramatically once driven out of the dealership. That’s because at that point it becomes a used car. No matter if you have only used for five minutes – and it is still used much less as a result.
This depreciation is an important concept to understand when dealing with the issue of financing, because while the value of your car drops immediately, the main part of your loan decreases more gradually. So if you try to sell the car too fast, you could end up owing more than the value at which it can be sold. This is called negative equity.
You can avoid getting into negative equity situations by following these simple rules:
1. Keep your car until it is fully paid. Obviously, regardless of the depreciation of your car, you will not have negative equity if you owe nothing.
2. Do not buy a car that is too expensive. If you struggle to make the payments, you might decide to sell the car before it becomes financially prudent.
3. Do not extend the term of payments. You may receive a slightly better interest rate and your monthly payment will be smaller. But it will commit you to the car during the financing term. Five years later, you will still be paying for a car that may no longer be suitable for your needs.
4. Make the largest down payment as you can. This will help offset the effect of depreciation and start giving some positive equity.
Important financial vocabulary:
It is the price at which you and the dealer finally agree, less any refund. The dealer will calculate taxes based on this amount.
This is what you initially paid to symbolize your intention to pay for the rest of the vehicle. The more money initially paid, less you will have to pay each month. A larger down payment could also give you a lower interest rate.
This is one of the most important numbers you need to analyze when choosing a financing option. It is the rate that a lender charges you for borrowing money. As interest rate increase the higher your monthly payments. To see how the interest rate affects the total amount you end up paying, do some calculations with our loan calculator.
This means how long it will take to payoff for the loan. The longer the term, the lower your monthly payment, but more total interest you will pay.
Where to get financing?
Financing can be arranged either through the dealer or through a separate lending agency. Who should do the financing? Evidently, who will offer the best option.
Financing through the dealer:
The great advantage of financing through dealer is convenience. Buy and finances the car at one time. However if the dealer is simply selling a bank loan for a profit, their rates will not be the best. Occasionally, dealers offer special rates to get rid of excess vehicles they may have, especially at the end of the year for that particular model. So be sure to ask about financing and compare their offerings with the previously obtained financing.
Usually, you can get a lower interest rate on a bench at a dealership, especially if you are an existing customer. Most likely they require a down payment of 10% to 20% to cover the depreciation of the car. If you do not make the required payments on the loan and they have to repossess the car. Smaller banks offer personal relationships, which are important, but may not be able to compete with the rates of the largest banks.
Credit unions have lower overhead costs than banks, enabling them to offer financing at lower cost. Sometimes it may even be one percentage point lower than what banks offer.
Equity Housing Loans:
You must be a homeowner to get a home equity loan. You can use your home as collateral for the loan – which maybe a little scary. If you cannot pay for the loan, they can take the house. But if you are sure you can afford it, a loan for home equity is a great way of obtaining funds because not only get a rate lower interest, but also the interest is tax deductible!
Like everything else these days, you can search online for auto loans. You do not the personal attention, but you can get a quick approval and very competitive prices.
Trading in your old vehicle:
Your old vehicle is basically a very large coupon that can be used as part of payment for a discount when buying a new vehicle. It can be used as a down payment. Trading in as a part of payment is a convenient way to assist with purchasing a new vehicle.
What wins on convenience could lose in price, compared to sell on your own. Selling a vehicle on your own could be as easy as submitting it as part payment, if you can find a buyer quickly. However if you have a car that is not in demand, it could take a longer to sell. This could become a problem if you need the funds from the sale of the car to purchase a new vehicle.
Whichever path you choose, you can maximize the financial benefits you get from your old car by cleaning it up a bit. A clean car gives the impression of a well maintained car. Even if you have never washed the car from the moment you buy it (and I really hope that’s not true!), It will make a huge difference at the time to sell if you thoroughly clean the exterior, vacuum inside and eliminates any kind of unpleasant odor.
Beyond aesthetics, if there is any mechanical problem with the car, the offer price most likely will be reduced.
If you plan to sell the car, make sure that everyone knows. Purchase a professional looking “For Sale” sign and write your phone number large enough that can be read easily from a distant. Take lessons from sales of real estate agents and produce a flyer that interested buyers can take home to read it more closely.