When we buy a car, we typically need to look at auto financing options for the vehicle that we decide to purchase.
Most of us don’t pay cash for the vehicle we drive, even if it’s a used model. When shopping for a used vehicle, you need to be especially mindful of the challenges that you could face when financing. Keep in mind that the vehicle already has miles on it, which will cause you to need to pay less for the privilege of driving what you want to take home with you. Here are some tips to keep in mind when financing.
Pay a Larger Down Payment
The more you can pay when you sign the paperwork to purchase your vehicle, the better off you’re going to be. When you pay as much as twenty percent as your down payment, you’re going to save yourself hundreds of dollars per year in payments and potentially a couple of thousand dollars in interest.
Shorten the Loan
The longer the loan you take out, the more miles will rack up on the used vehicle and the more you’re going to pay in total. You’re likely going to pay more than the used car is worth to start with, and taking out a loan that’s longer is only going to make this dollar amount go up quickly. Try to secure a loan that’s 48 months in length or less, especially when you shop for a used vehicle.
Pay Attention to Your Credit Score
Your credit score does matter, no matter what you’re told. If you have a poor credit rating, you’re going to pay more for your loan and much more in interest and fees over the life of the loan. It’s important to either work on your credit score while driving a vehicle that’s paid for or to look for a better deal or a promotion from the dealership.
Avoid a Variable Rate Loan
When you sign a variable rate on your auto-financing loan, the lender has the right to increase your interest rate (rarely will it decrease). This means you could have payments that cost you more than expected. Find a fixed rate loan and know that your monthly payment won’t change at all when you’re ready to drive.
Compare the Loans
Don’t take the first loan you’re offered, compare the interest rates by banks, credit unions, online lenders, and dealers. Find the one that will save you the most in interest fees so that you can pay as close to the actual price of the vehicle as possible. This may take some time but it’s worth it when shopping for a used vehicle.
Get a Pre-Approval
If you show up at a dealership with a pre-approval from a lender, you’ll have the negotiating power you need. A pre-approved auto-financing loan allows you to shop for a vehicle with the idea of what the price will be that you will pay. Try to negotiate the price of the used vehicle downward to fit into your loan amount.
Pay the Taxes and Fees up Front
In order to keep your payments lower and pay less in interest, be prepared to pay the taxes and fees up front so that you don’t end up paying interest on these items. If you’re already planning to have a strong down payment, make sure these items are paid for up front rather than being rolled into the loan.
Say No with Confidence
You’re buying a used vehicle that will be your source of transportation for a few years, and you shouldn’t overpay for it. Don’t pay for extras that are only meant to make money for the dealership. You can consider an extended warranty, but only if it’s the right choice for you. Don’t be afraid to say no to some of these added expenses that will only increase the cost of your loan every month.