Getting a Car Loan: From Start to Finish
The need for a new car and a new loan often go hand-in-hand. But if you think searching for the right set of wheels is the toughest and most vital part of the process, you could find yourself on a rocky road. However, devoting as much time and energy into obtaining a loan that is right for you will go a long way toward making new car ownership a smoother journey.
Credit Check
Knowing your credit rating and what your report holds will prevent any unpleasant surprises when potential lenders retrieve those records. Also, this will allow you to fix erroneous items before heading to the negotiating table, explained Brian Robinson, senior financial advisor and partner at The BDA Wealth Group in Phoenix. "Some institutions offer a zero rate to excellent credit," he said. "Getting your report cleaned up may put you in that category."
Know Before You Owe
Before getting overwhelmed with dollar figures, determine what is realistically doable. Find an online payment calculator and identify a loan amount that you are comfortable requesting based on the monthly payments, recommended Michael Kelley, senior director of consumer lending at Desert Schools Federal Credit Union in Phoenix. Then, compare rates before applying. "Most lenders publish their rates on their websites for research purposes."
Start Close to Home
Whether it's a bank or credit union, begin the search with your primary financial institution. The place that knows you and your money may be more willing to give you a break. "Many credit unions and banks offer rate discounts tied to having multiple services at the institution," Kelley said.
Do Your Homework
Investing quality time into researching options will likely produce rewarding results when you finally make your loan decision. "Shop multiple lenders and be up front with them," said Karen Winsborough, finance manager at Bell Lexus in Scottsdale, Ariz. "Let them know you are shopping for the best rate so they are compelled to do their best upfront."
Down Payment
Put yourself in a position to put down an initial investment on your soon-to-be vehicle that will - at the very least - cover taxes, fees and any negative equity on trades. Winsborough suggested. "It doesn't make sense to pay interest on these items."
Consider Details
As you research offers, look out for any rates that appear out of line or that vastly differ from the others and be suspicious. Robinson also recommended scrutinizing for hidden charges, such as penalties for prepayment. It also can't hurt to ask financial institutions whether they provide incentives for retaining certain asset levels or specific types of accounts, he said.
Rebate Rewards
When given the opportunity to take advantage of a cash rebate or low-interest rate, Kelley advised going with the cash no matter how tempting the other may be. "This will save you money in finance charges over the term of the loan."
Loan Life
Remember to verify the term of the loan, which is usually 3-to-6 years. Carefully evaluate what you can afford right now versus over the long haul. "Typically, the longer the loan duration, the less the monthly payment. But the rate will be higher, usually a 2 percent swing," Robinson said.
End-of-Year Deals
If time is on your side, shopping toward the end of the year can yield great deals, especially if the following year's models have already hit the showroom floor, Robinson explained. And this could be kinder on your wallet. "While you may not get a better rate, you may get a better price."
