How do I pay for my new car?
Unless you have a bottomless pit of money, you will probably need to look at financing your new or used car purchase. We will look at the options available to you, and even do some basic math. Learning the basics of auto financing can save you thousands of dollars over the life of your loan.
Should I lease or buy a new car?
It really comes down to this... Do you want to be driving a new car every 2 - 3 years and can you deal with your mileage being restricted? Leasing is a great way to drive a little more expensive car than you could afford if you were buying, but you won't own it after the lease term is up. For some people that's fine, for others they plan on not having an eternal car payment, and keep their vehicles more than 3 years. I personally don't like a lease since I don't want to have to worry about mileage and if I keep the car longer than 3 years, I won't have a car payment to deal with.
How to finance your new car.
As if you didn't have enough trouble finding the car of your dreams now you have to figure out how to pay for it. No doubt you see the low monthly payments offered in the paper. I bet you also had to squint to realize that it was a lease price being advertised. Be aware of all the low to zero interest rates advertised, they often are only valid for customers with perfect credit. Making sure your Credit is in tip-top shape will help you qualify for these low interest rates.
Decide where you will finance: It's convenient to finance through the dealer but many times you are not getting the best interest rate.
Consider the following sources:
- Credit Unions: If you belong to one, you can usually get much lower interest rates. Credit Unions are there to serve you, not themselves.
- Online Lenders: With lower overhead, online lenders can offer you better rates than a dealer.
The idea is to have your credit in order, several finance offers in your pocket BEFORE you ever step foot in the dealer's showroom. This will allow you to get the best deal possible when it comes to terms and interest rate. A dealer will make some from arranging the financing, so they have an incentive to work with you and match or beat your other offers. They also usually get paid more if the interest rates are higher, so beware they are really working against your best interests when it comes to loan terms.
Also you need to consider...
- Downpayment: Most dealers require a downpayment. If you are trading in a car which is under water (you owe more than it's worth) you may be in a situation where you will need Gap Insurance. Gap Insurance is a small policy which covers the difference between the loan value and the value of the vehicle you are financing. In the event of an accident which totals the vehicle, you would not have enough insurance to cover the loan payoff, Gap Insurance fills that "Gap". The other consideration with a downpayment is depreciation... As soon as you drive that car off the lot, it loses some of it's value. You want to try your hardest to not go "under water" with your loan, so a large downpayment can help by covering some of the first year depreciation.
- Check the fine print: Make sure you will not be penalized for paying off the loan early or for auto refinancing. Also check the minimum collision coverage required.If you are used to carrying a $1000 deductible and the lender requires a $500 deductible, you could be in for a surprise when the insurance bill shows up.
- If you decide to go to the dealer to arrange the financing, request to see the approval letter from the lending institution. Dealers can mark up the interest rates and earn commission by doing this little trick.
- Before signing: Check the fine print ! Always keep a calculator with you and double check everything.