The decision to purchase a new vehicle is exciting. Whether it's your first car purchase or not, the freedom of mobility and independence is invaluable. You can go anywhere, whenever you like.
But cars are expensive. Buying a vehicle that suits your needs and your budget can be a challenge. Often, the vehicle that you would like to drive may not be the one that you can afford. Become an educated buyer.
Buying a car is a two step process
1) Shop around for your new car. You may want to attend a local auto show, purchase car magazines, speak to car owners, or research online. Once you've determined the type of vehicle you'd like to buy, visit dealership websites. Find the year, make, model, and color you'd like. Ask about the cost and availability.
2) Shop for your financing. Once you know the cost of the vehicle, decide how you plan to pay for it. Figure out the best way for you to finance your vehicle. You may have saved some money, have a vehicle to trade, or see that a dealer is offering rebates. Review your finances and your credit reports.
Many times the dealer will assist in securing financing for your auto loan. However, you may be able to get better terms through another bank, credit union, or financial institution. Different lenders offer different terms. You may be able to secure a loan on your own with a lower interest rate, monthly payment amount, and shorter loan period.
Only enter into a loan that you can afford. Make sure the financing terms are right for you.
Down payment, trade-in, or both?
Consumers who plan to purchase a new car often have money saved to make a down payment. These funds will lower the total cost of the car.
The consumer may also have a car to trade. The dealer will deduct the value of this vehicle from the cost of the new vehicle.
If money is still owed on the loan for the trade-in, you should contact the lender, before going to the dealership, to request a payoff figure. The loan for the trade will need to be satisfied in full. If the dealer offers less for your traded car than the amount owed on the loan, you may choose to have the difference added to the cost of the new loan.
Whether you apply money toward the new purchase with a down payment, or have the value of your traded vehicle applied towards the purchase, the cost of the new car will be reduced and this will decrease the amount you need to finance.
Owning a car is a responsibility
Auto loans may make the purchase of a vehicle more affordable, allowing the borrower to make monthly payments over a specified period of time. The loan agreement, or Retail Installment Sales Contract, signed at the time of purchase states the monthly payment amount and the date the payment is due. Payments must be made in full and on time. If the buyer defaults on the terms of the auto loan, the lender has the right to repossess the vehicle.
Check your credit report
If you’re in good financial standing and have a good credit score, you should be approved for an auto loan. Good credit shows financial responsibility and that you have a history of making payments on time. Check your credit report and score before you discuss options with a potential lender so you know where you stand. You can get a free copy of your credit report every 12 months from each of the three credit reporting bureaus.
Consider a cosigner
If you can’t secure a loan on your own, consider asking a family member or friend with good credit to cosign for you. A co-signer guarantees that the loan will be paid if the primary borrower falls behind on payments or defaults. It is a significant financial responsibility, so make sure that the person you ask to cosign is aware of what they’re agreeing to.
Wait and save
If purchasing a new vehicle doesn't fit your budget right now, consider waiting a bit longer so that you can save. It may be worth it in the long run. If you're in a stronger financial position, you may be able to make a larger down payment, get a loan with a lower interest rate and shorter payoff period.