Whether you are buying your first car or your fifth, there are few things more exciting than getting behind the wheel of a new car that is all yours. That, it turns out, is not necessarily a good thing. Sometimes we get so wrapped up in the process of shopping for a car — picking the model, homing in on the features, choosing the color — that we forget there’s a second half to the process that is equally important: Shopping for financing.
In case this is your first rodeo, you should know that similar to taking out a mortgage on your home, auto loans exist to help you buy a car. The price you pay each month is a combination of the interest rate (the cost of the money you’re borrowing) and the term (or length) of the loan. Right now the average new car loan for a person with a credit score of 660-780 is about 5%, according to Bankrate (though you may be able to do much better, more on that in a moment) and most new car loans have a 5-year or 60 month term. The good news is: 2019 is a car buyers market. Due to depressed car sales this year, deals are there for the haggling says Robert Sinclair Jr., Manager of Media Relations at AAA.
Before you start talking financing with any car dealer, you should negotiate the best price on the car itself says Jack Gillis, Executive Director of Consumer Federation of America, says. In other words, keep the transactions separate. Often, salespeople will bundle all of the costs that come with buying a car into one attractive number. That’s to be avoided because it prevents you from understanding what you’re paying for the vehicle vs. the loan. Instead, the seller break it down for you and even write it out on a piece of paper so you understand where each of your dollars is going. Being agnostic in terms of which make of car you take home can work to your benefit, Sinclair explains. If you know you want, say a small SUV, but don’t care if its a Ford, Hyundai, Suzuki or Jeep, you can pit dealers against each other.
Once you know what the car is going to cost you, you have to figure out how you’re going to pay for it. “The cost of financing is one of the most overlooked and most expensive costs of car ownership,” Gillis says. You should be shopping around for your loan before you decide to buy just as you shopped around for your car before heading to the dealership. This way, you can compare the seller’s offer to financing you can obtain from other sources.
Gillis recommends going to your credit union or bank to get a loan. If you’re not a part of a credit union or local bank and you’re looking to take out an auto loan, consider joining one, he advises, because they often have the best financing deals. Then compare that to “manufacturer subsidized financing.” Often you’ll see very low interest rate financing offers advertised on vehicles manufacturers are particularly looking to move. But, he warns, only those with the best credit scores will qualify for the “zero or low percentage offers.” Also understand that taking a financing deal might disqualify you from other cash back offers on the table. Run the numbers to see which is the most valuable.
With Rebecca Cohen