One of the most important financial decisions you will make is purchasing a car. Getting behind the wheel of your brand-new car and driving home in it is certainly exciting. But it’s also important to remember that you’re signing up for years of auto financing and should know how much you can afford before you set foot in a dealership or even talk price with a salesperson. Here are some tips that may help you during the process.
Check Your Credit Before Going to The Dealership
Dealerships will often advertise excellent interest rates on new cars. These rates are available to buyers with the best credit. Before you go to the dealership, it’s important to check your credit report and score. If your score is lower than you want it to be, there are still options for financing a vehicle, but you may need to research your options carefully.
Keep the Loan Term Short
Beware of deals that sound too good to be true. Regardless of your credit, a dealer will try to sell you low monthly payments. This isn’t what you want. Lower payments are a manipulative and old-as-dirt sales tactic. The longer you take to pay a car loan, the more interest you’ll pay. But that’s not all. Banks often charge higher interest rates for longer loans, increasing your cost of credit.
Dealers like smaller monthly payments because they:
-Make it seem like you can afford more than you can
-Make it seem like you’re getting a deal
-Confuse buyers and pacify negotiations
Put 20% down
A 20% down payment is your best bet for a new car. By putting 20% down, you’ll get a lower interest rate and end up paying less in interest overall. While some dealerships offer 0% down loans, these will come with higher monthly payments than loans that require 20% or more as a down payment.
Buy a Car You Can Afford
Buying a car is exciting, so it’s easy to get carried away with how much you can afford. But it’s important to realize that your vehicle is unlike other assets in your portfolio – it’s a depreciating asset. Your car will lose half its value in a few years. Most luxury and sports cars depreciate faster! So, make sure to buy a car that’s within your budget.
