Getting a new car is one of the most exciting things in life! Well, it is to me at least. Whether it’s your first car, a used car or a new car; there are a number of things to take into account. Next to buying a house, it’s probably the most expensive thing you own so you should spend the appropriate amount of time educating yourself on the process. More often than not, the high price also dictates that you secure a loan for the purchase.
This might be obvious, but it bears repeating. If you can buy the car with cash, do it, and save yourself the interest you’ll pay with a car loan. If you’re like most of us, this probably isn’t an option.
Unlike a mortgage, most car loans don’t require you to make a down payment. In most cases, you can finance up to 100% of the cost of your new ride. This is great if you’re currently cash poor, but it means you’ll be paying for the car longer. In addition to repaying the principal, you also have to pay the loan interest and probably some administration fees.
When you apply for a car loan, you need to decide how long a term you want. Generally, you can expect anywhere from two to seven years. How long you will take to pay back the loan will dictate how much interest you will pay. The longer the term, the more interest and vice versa. When you apply for a loan, you’ll have the opportunity play around with different terms to see how it affects you payments. Most lenders will be flexible on this.
What interest rate you’ll pay is probably not as flexible as the term, but you should shop around as much as possible. Know what your credit is like. If it’s bad, the lender is going to be more rigid on your rate, and it will generally be higher. There are number of lenders out there that recognize a large portion of the population has bad credit and they offer and they offer what is often referred to as “second-chance” financing. Again, the rate will be higher, but if you can demonstrate you have a job, they will be lenient on qualifications.
When you walk into the vehicle showroom, it’s pretty easy to get carried away. Add to that a motivated sales person trained in squeezing as much money out of you as possible, and it’s not hard to go overboard. Before you sign on the dotted line, be sure you understand how much you can afford a month and stick to it. Make sure you understand the details of the financing they offer, including what the total amount of the loan is.