Getting a new car is exciting, but working through the financial details can be stressful and intimidating. If you don’t have the cash to purchase a car outright, you’re going to be financing it. For those who are new to financing a car, here are a few tips to help you make sure you’re getting the best deal possible.
Tip 1: Set a Budget and Stick to It
Do this before you set foot in any dealership or start shopping online. To budget for car expenses, a good number to keep in mind is 25 percent of your monthly income. This percentage includes all of the cars in your household, so make sure you’re factoring in any existing car payments. It should also include costs for car insurance and fuel.
Tip 2: Know Your Credit Score
It’s important to know your credit score before you begin the car-shopping process. This will give you a good idea of where you stand in terms of being able to secure a good interest rate. If your credit score is above 680 – good for you! Banks consider you a “prime borrower” and will fall all over themselves to give you excellent finance options.
Scores under 680 mean you’re a “sub-prime borrower.” You’ll pay a higher interest rate and will have fewer finance options. Credit scores in the 500’s indicate “high risk borrowers” and generate the highest interest rates and even fewer borrowing options. Understanding your credit score puts you in the best position to secure the most attractive financing terms.
Tip 3: Factor in Financing
When totaling up what a car will cost you, make sure to include the finance charges into the total price. Understanding the total amount you’ll pay if you finance for a shorter amount of time or stretch it out for a longer period will give you a better picture of which finance terms are most attractive.
Tip 4: Consider Financing Online
Years ago, the only way to drive away in a new car was to spend hours at a dealership looking at and haggling over vehicles. Today, you can easily browse through and finance cars online from the convenience of your laptop, tablet, or phone. This will not only give you a wider selection of vehicles; it will also give you a larger variety of financing options to choose from.
Getting a great deal on your next car is one part having good credit and three parts doing your homework. Now go forward and shop confidently!