4 Tips for Shopping for an Auto Loan
Getting a new car is one of the more exciting purchases we make; but, they are not cheap, and most […]
Getting a new car is one of the more exciting purchases we make; but, they are not cheap, and most of us need to secure some sort of financing to get those keys in hand. When considering a car loan, there are many factors to take into account to ensure you get the most favorable rate and that you are not over-extending yourself. Here are some tips for financing a vehicle.
Make Sure Your Credit Report is in Order
This first tip is vital when seeking any type of loan; your credit score is that all-important number that gives lenders a picture of your relationship with money. You want every point you can get and applying for a loan under the assumption that everything in your credit report is correct and you have whatever score you have, can be a costly mistake. Even something like incorrect reporting of credit limits can ding your score by inaccurately reflecting your debt to available credit ratio.
Avoid Long-Term Loans
When getting a loan, it is easy to just focus on the immediate effects—low monthly payments are attractive because we are thinking in terms of monthly income, and stretching out a car loan over six or seven years minimizes our monthly financial obligation. But, you want to think of the big picture. Cars depreciate in value dramatically once you drive them off the lot and any warranty will likely expire in three or four years; you do not want to risk being stuck paying off a loan on a car that you no longer want or may end up getting rid of for one reason or another.
Look to Get Outside Financing
Getting a loan from a dealership is certainly not your only option, and you may be better off getting financing from an outside source such as a bank , credit union or peer to peer lending source. First, this reduces the risk of getting seduced by a car you really cannot afford ,and taking out a bigger loan at the dealership than you should. Also, financing secured beforehand essentially makes you a ‘’cash buyer’’ and may give you more leverage in the negotiating process. No matter where you end up getting your loan, it is important to figure out a realistic budget—many financial experts recommend that vehicle expenses, including gasoline, should not account for more than 20 percent of your net income, which is what you are left with after taxes.
Inquire about Penalties
Financial circumstances can change, and if you find yourself flush with cash and wanting to pay off your car loan early, make sure that it is not going to cost you. Look for lenders who will not charge a pre-payment penalty if you settle your bill sooner than anticipated, either with one lump sum payment or making extra payments. Read loan documentation carefully as penalties may not be labeled exactly with that wording.
Kelli Cooper is a freelance writer who covers all things auto; if you are in need of auto insurance in Canada, visit Kanetix for more information, such as quote comparison.