How To Shop for a Car Loan
When you go shopping for a car, you may be planning on borrowing the money. While it is best to pay cash for your car, if you are going to borrow money to purchase the car, it is important to shop around for the best loan possible. Many people automatically assume that you just work this out at the dealership, but you can often find better rates by looking around. Some people plan on rolling their old loan into their new one, but this is a bad idea.
Determine How Much You Can Afford to Spend
Once you determine that you want to buy a car, you should determine how much you can afford to buy. Ideally, you should be able to pay off the car in three years. This gives you some economic stability. You may qualify for more money, but that does not mean that you should borrow more money. You do not want to deal with not being able to afford making payments on your car because of a shift in finances. It is better to be very conservative in how much you choose to spend on a car.
Call Local Banks and Credit Unions to Find the Best Price
Call your local credit union and see if they will pre-approve you on a loan. You can also contact your current bank. These institutions will offer lower interest rates if you have an automatic payment drafted from your account. You should ask about these and any other discounts that they may offer. It is important to take the time to call a few places.
Your credit union will likely have the lowest rate. You can compare the rates with the dealership rates and choose the best offer. You should look into all of the possible ways to save on your loan like setting up an automatic payment or switching banks to qualify for the lower rate.
Be Prepared to Give Your Financial Information
During the pre-approval process you may be required to provide your current source of income, and proof of the amount you currently make.
If you are not required to do this to receive a pre-approval, you should be prepared to do this at the time you sign the loan. Some companies are very strict on this procedure, and others are not.If you do not qualify for a car loan you will need to save up and purchase the car with cash. This may limit your options when you purchase a car.
Start Shopping for a Car
Once you have been pre-approved for a certain amount you need to find your car. You can actually begin looking at about the same time. When shopping for a car you are better off selling your old car yourself rather than doing a trade in. Additionally you shouldn't roll your current loan into your new one. This will make you upside down on the car meaning that you will owe more than it is worth. Take the time to look for the best car available. Do not be afraid to negotiate a lower price. When you have your own financing, you may be able to get a better price because the dealership cannot slide the price around in the financing.
Finish the Loan Process with Your Bank or Credit Union
When you have found your car you need to talk to your loan officer who will instruct you on what to do in order to purchase the car. Often this will involve you taking a check over to the dealership.
The dealership will sign the title over to you with a note about the lien on it. Then when you change the car title to your name, it will be mailed to the bank or credit union. When you pay off your car, you will receive the title.
You should work to pay off your car loan as quickly as you can. Then begin to save that money so that you can pay cash for your next car. This will give you a lot more financial freedom. It will help you to break the car loan cycle. You may also consider joining a car share while you save up money. This is a good option if you live in big city.
Buying a car is not an investment. Remember that when you buy a new car it depreciates quickly. You lose money the second you drive it off the lot. You should shop for a used car to save yourself from taking this loss. This one of the common mistakes people make when buying a car. Leasing a car may not be the best option either.
Don't be afraid to negotiate the price. Since you are not financing with the dealership you may be able to get more money off, since they are not taking a risk on lending you the money. This can save you quite a bit of money.
Additionally you should have the car checked by a mechanic, especially if you really don't know anything about cars. This will prevent you from buying a car that will need a lot of repair work or that has been in a serious accident.
Be ready to have car insurance as soon as you purchase the car. If you already have car insurance, you can call to add the car to your existing policy. If you do not have an existing policy, you will need to set one up before you purchase the car.