Key Tips To Maximize Your Auto Financing
Let's start with the worst way to finance a car: never just walk into the dealership, choose the car you like, and sign on the dotted line. The dealership, new or used, will tack on every hidden fee they can, and they'll put you in a position where you may be paying a higher monthly fee than you strictly need to at a higher interest rate than you could have acquired. So how do you avoid being impacted like that? Well, there are a few ways, we'll cover them here:
- Understand What Your Credit Score Is, And Interest Rates For Your Area
- Prior Financing At The Dealership, See What Other Loans You Can Get
- The Higher Your Down Payment, And The Shorter Your Loan Term, The Better
Understand What Your Credit Score Is, And Interest Rates For Your Area
Credit shifts with time. If you're smart with your money, you could still have bad credit. If you were to pay a loan back on time for something like college, and then not finance anything for seven years, your credit score would essentially reset--it would go down to nothing. Not zero, just a blank credit score. If you don't find this out until you're at the dealership, expect them to get sneaky with you. However, if you know your credit score, then you know the sort of interest you can expect.
Now interest rates will differ per area. Nationally, the average sits at 5.76% for new cars, and 9.49% for pre-owned vehicles. In more rural states, you can expect that number to be much less. In a state like California, expect interest rates to be higher than the average. Do a little online research before you finance so you can be sure the dealer gives you the best rate in accordance with what your credit will buy.
Prior Financing At The Dealership, See What Other Loans You Can Get
Before you sign on the dotted line with any dealer, understand that you don't necessarily have to finance through them. You can finance straight through the bank with their interest rates and cut out the dealer entirely, if you've got requisite credit. Essentially, you would figure out the vehicle you wanted to buy, secure the loan through the bank, and pay that to the dealer outright. Then you're paying the bank back for that loan rather than a loan specifically defined as an "auto" loan. You may have more flexibility going this route--but you may not; it depends on the area and how savvy you are about financing. Still, especially if you're in a smaller town with limited dealer options, going through the bank can "stack the deck" in your favor.
The Higher Your Down Payment, And The Shorter Your Loan Term, The Better
If you're buying new, a high down payment reduces the interest you're liable for. It will also reduce the term length of your loan. This is fundamental. At the 5.76% average interest rate, for a $30k vehicle, provided you have no down payment, you'll end up paying a small amount under $35k, total.
This will take 60 months if you put no money down and pay $500 a month prior interest. By the time you're done, the vehicle you own will be about 60% less valuable than it was when you bought it. So you pay more, and when you're done, you've got less--if you don't render a sizable down payment. But pay a lot up front, and pay your loan off quick, and you'll potentially save thousands of dollars in interest.
Making The Right Decision
You can finance through the bank, or an auto loan group as provided by the dealership through whom you buy. The bank is probably better. You should know your credit score and your interest going into a financing situation, and you should pay as much of the vehicle off up front as you can. Also, remember that used vehicles have higher interest rates generally. Provided you follow these tips, you should be able to finance your vehicle in the best way.