You’ve researched the market, studied your options, located the perfect car, and negotiated a price that works for you. Arranging how you’re going to pay for your new car loan is all that remains in the purchasing process, and you’re eager to get it all behind you and drive your dream car off the lot.
Few of us can hand over cash for the car we’ve made up our minds to buy. And if we can do so, we’re probably one of those rare breeds who doesn’t have to look at price tags anyway. But if we’re a member of the 99% living in the real world, we’re going to have to finance that car with a loan. Getting the best deal on the terms of that loan — so that we spend what we have to but no more – will take some effort, but it can be done.
Manipulate the Amount of the Car Loan
The best way to save money on car loans is to borrow as little as possible. After you’ve made up your mind what car to buy, the dealer is probably going to offer you a lot of extras: air-conditioning, stereo system, a variety of maintenance warranties, and the like. You’ll have to give each of these some thought. Do you really need air conditioning if you’re living in Victoria, where the summer temperatures rarely rise to 30 for very long? Is an alarm system necessary if you’re farming in Alberta? If accessories like stereo, car racks, and navigation systems are something you really need, you can save a lot of money by installing these yourself after you’ve purchased the car.
Offering the dealer a large down payment is another way to keep the price of car loans down. The down payment may be cash, but it could also result from trading in your old vehicle. You’ll need to find out the market value of your old car before you begin negotiating your loan. This isn’t difficult, but it takes time. If you bought your old car new, then just check out what it’s selling for now. You can do this by checking a site like Kelley Blue Book or by seeing what a similar car has gone for at eBay auctions. Knowing what your car’s worth will give you the confidence to insist on a good trade-in price.(If you want to trade-in a car that you bought used, you may need to do a little more sleuthing by ordering a vehicle history report. This document, available in Canada from online companies such as CarFax, isn’t free, but if the information it contains allows you to negotiate a higher trade-in price, it’s worth it.)
If you’re looking to trade-in a car on which you still owe money, the process is essentially the same. But bear in mind that the trade-in price you finally get is going to represent only the equity you’ve got in the car. That is, if you still owe $500 on the car and you’re given a trade-in price of $750, then the amount you can use as a down payment is $250.
Decide on a Lender
Once you’ve subtracted the amount of down payment (or the value of your trade-in) from the price of your chosen vehicle, you’ve got the amount of the loan you’ll need. Ideally, you could borrow this money from a friend or family member and agree to pay it back at a certain time. In the real world, though, most of us will have to get our car loans from a lender who charges interest
Car dealers usually offer their customers financing. You agree that, in return for the car, you’ll pay the dealer a portion of the cost plus interest each month over a given period of time. Banks and credit unions also offer such financing, as do a number of online companies.
Lenders adjust interest rates depending upon the credit rating of the customer. If you have an excellent credit rating, you’ll qualify for special low rates offered by the dealerships. But what about bad credit car loans? Or even very bad credit car loans? You probably won’t be able to save money by a dealer-financed loan in this case, but by all means research the online companies. If you’ve got a job that brings in a regular income, you can qualify for a car loan at rates you can manage. Even bad credit car loans can be negotiated online, so check out all these options.
Read the Contract Carefully
A lender may offer you what looks like a super deal, with low monthly payments and an interest rate that seems very reasonable. But here’s where you’ll want to examine that contract very carefully before you sign. Do you save more in the long run by paying a larger amount each month for a shorter time, or a smaller amount each month for a longer time? Remember that organizations in the business of lending are out to make a profit, not to do you a favor. Examine the rules for making payments. Are you allowed to pay off the loan early without paying a penalty? Knowing the score before you sign will help you save money on that car loan in the long run.