Seven out of 10 new cars
and trucks are financed, and you can also finance a used car. But to do it right
you must be prepared before -- and after -- you reach the car lot!
You
can, of course, pay cash.
You can get an auto loan from a bank,
credit union or other financial institutions. You can have these loans approved
before you ever hit the showroom (a major plus in most deals). These sources of
financing will usually offer the lowest rates you'll find, and credit unions are
generally lower than banks.
You can also get financing from
the dealer or auto manufacturer.
A general rule of thumb says that dealer or manufacturer
financing will cost you more, but it isn't written in stone. There
will be occasions where a dealer will actually give you the best
deal. Unfortunately, those occasions are not predictable (despite
endless "must sell" and "no money down" advertising
by dealers) and the only way to be sure is by comparison shopping.
One other choice is a home equity loan. You'll get
a good interest rate and the payments will be tax deductible.
But be sure such a loan won't leave you in any danger of losing
your house -- after all, it's just a car. If financing is a stretch,
your family may loan you money or co-sign for a loan. If they
do, make sure ALL parties are fully aware of every detail of the
loan and the possibilities should circumstances change or things
go wrong.
Keep leasing in mind even if you think you don't
want to do it. It may be an option you like more as you go along.
It's all in the numbers
Interest rates on new cars are lower than on used vehicles. And,
in general, new cars can be financed over longer terms than used
ones. This equation can make a new car cheaper than a used one
in many cases.
Not all the numbers in your deal will be set in
stone before you buy, especially if you go with dealer or manufacturer
financing. The interest rate you pay can vary, and so can the
down payment and other details like the value of your trade in
or the length of the loan you take. You have to decide. Don't
let one number dominate you. For example, a really low down payment
is not by itself a guarantee of a good deal. You need to consider
all the numbers together to know what sort of deal you're getting.
Dealers will often paint a low price on the windshield,
then make their money back when they finance the car. Sometimes,
dealers offer very low interest rates for specific cars or models,
but then they won't come down a penny on the price. Or to qualify
for that rate you'll have to pony up a large down payment. You
might find it a better deal to pay higher financing on a low-price
car or you may go for a vehicle with a low down payment.
Bottom line -- know
your numbers. Be sure, every step of the way, that you know
just how much you are paying, when, how and what for! No exceptions!
In simple terms, you will pay a lower monthly amount
the longer the term of the loan -- but in the end you will pay
out more in total for the vehicle this way. The longer the loan,
the longer it takes you to build up equity -- that is, for the
car to be worth more than you owe on it. So with a long loan it
will usually be some time before you can re-sell the vehicle and
clear the loan.
Know your contract!
Read -- and be sure you understand -- every word of every document
you sign or initial. No exceptions.
Sign nothing unless you understand what it is, make
sure every "i" is dotted and every "t" is
crossed and there are no blanks left. Make sure any changes to
the basic contracts are signed or initialed by both parties.
If you get embarrassed by a feeling of asking too
much, imagine how much fun it will be to tell a dealer later that
he has got it wrong and owes you something. He will haul out that
contract you caved on.
When you sign the contract make sure the dealership
has an authorized representative sign -- you don't want to find
out later that the nice salesperson was not empowered to sign
on behalf of the dealership.
And always make sure you have copies of everything
you signed.
Be wary of advertising
Be wary of advertising that promises special offers, e.g. for
first-time buyers, people with less than perfect credit or senior
citizens. In offering loans to people who don't have stellar credit,
lenders often require a large down payment and a high interest
rate. If you need to sell the car in the short-term, or if you
write it off in an accident, you may owe more than the car is
worth. And with any special offer, consider the reputation of
the dealer making it.
Truth in advertising laws can also help you know
just what a dealership is offering and whether that outfit is
following the rules.
During the debate over price and total cost of the
car, remember that you control one major variable -- the down
payment. Make it bigger and you can start bringing down the monthly
payment amount.
Rebates make some deals sound just made for you.
But rebates should be considered just another variable factor
in your overall cost. Use
your calculator to work out just how much a rebate will save you.
Also keep in mind that rebates can artificially jack up the popularity
of a car, then two or three years down the road when it comes
to reselling the car, that artificial popularity has gone and
you're trying to get good money for a vehicle very few people
wants.
Golden rule of auto financing:
Go prepared. Uncertainty is your enemy, and salespeople
are experienced at recognizing and using it.
-- Posted: Feb. 15, 2005
