Buying a car? Know your options before you head to a dealership.
When it's time to shop for a car, most of us focus on finding the best deal on the vehicle itself. But did you know that you can save money through your car financing, too? Comparing financing options before you start car shopping can put you in a better bargaining position that may save you hundreds - or even thousands of dollars over the life of your loan.
Financing a new or used car is usually done through the dealership when you purchase the car, or through a direct lender, like your bank.
Understand your financing options.
- Dealer financing offers the convenience of buying and financing under one roof. Dealers may be able to offer flexible financing options, as well as manufacturer incentives or cash back. Be aware, though, that dealer financing may include additional fees and higher interest rates, especially if your credit history is less than stellar.
- Direct lending from a financial institution, such as your local bank, gives you the benefit of knowing what you’re eligible to borrow— as well as how much you can afford — before you set foot on the car lot. Using a direct lender also means you can shop from other sources, such as private sellers, so you’re not limiting yourself to a dealership. Direct lenders may also be able to offer you more competitive interest rates and shorter loan terms.
Shop for your loan before you shop for a car.
Regardless of whether you work with the dealership or not, the lender will consider factors like your credit score, the amount and length of the loan and the ratio of debt to income when determining your loan approval, terms and interest rate. To put yourself in a good position, take care of these to-dos in advance:
- Determine how much you can afford to pay each month. Consider the total cost of the car, including interest, loan fees, ongoing maintenance and insurance. You can use our auto calculators to estimate how much you can afford and what your auto payments would be.
- Check your credit report and correct any errors immediately
- Investigate the cost of car insurance in advance
- Determine if you can put money down and/or if you have trade-in value
6 smart tips for getting a better car financing deal.
- Try to obtain loan offers from at least three different sources and use them as leverage to get the best rate possible.
- Get pre-approved for a loan — if you bring an offer from a bank into a dealership, you may be able to negotiate a lower rate.
- Know your credit score before you go to the dealership.
- Try to keep the loan term as short as you realistically can.
- Don’t be afraid to negotiate items with the dealer such as trade-in value, interest rate, length of loan and optional features like alarm systems and window tinting.
Before signing any contracts, make sure to review loan documents and terms carefully. To learn more about car financing options and the loan process, contact your local bank. A loan specialist can answer your questions and help arm you with the information you need to make the best decision — for your lifestyle and your wallet.