While uncovering the best car deal can seem like a battle of wills (you versus the car salesperson), it doesn’t have to be.
Today is the day. You’re ready to start shopping for your next (or first) vehicle. But, before you walk through the doors of your local car dealership, you’ll want to do more than dust your shoes off on the welcome mat. The misconceptions surrounding auto financing are plentiful and can cost you time, embarrassment, and money.
While uncovering the best car deal can seem like a battle of wills (you versus the car salesperson), it doesn’t have to be. Before you enter the showroom, let’s dispel some of the more common auto financing myths so you’ll be able to quickly differentiate between a good financing deal and a bad one.
Myth #1: If I can afford the monthly payment, it’s a sweet deal.
A low monthly car payment that fits nicely into your spending plan seems like a no brainer, right? Letting the monthly car payment amount lead the financing decision is a mistake. When you focus on payments, it’s easy to ignore the other costs that make low payments possible.
Extended repayment terms are often the quickest way to secure a lower monthly car payment. Use a car payment calculator to compare monthly payments based on the repayment term. The extended terms mean you’ll pay more in interest charges over the life of the loan. This may make the low monthly payment not as attractive as you first thought.
Simple math will tell you that the larger the down payment, the smaller the amount financed thereby creating a smaller monthly payment. This, too, sounds like a good idea, and it might be if you’re able to secure a competitive interest rate. However, borrowers with bad credit should proceed with caution.
While it’s true that a sizable down payment can lead to lower monthly payments, individuals with poor credit should be careful. Low credit scores are unlikely to garner a low interest rate car loan regardless of the down payment amount. Even financing a smaller amount doesn’t necessarily equal a sweet deal. The repayment terms, interest rate, and the down payment requirements are equally important.
Before you apply for a car loan, takes steps to boost your credit score by making on-time debt payments to your creditors and keeping credit utilization low. A higher credit score will result in a more favorable interest rate.
Myth #2: The best car loan interest rates are advertised on television.
Have you ever read the fine print at the bottom of television commercials or been able to understand the exclusions and restrictions of the fast-talking voiceover? Offers of zero percent down and zero percent financing often come with limitations. Here are some that will cost you more than the promised savings.
The deal only applies to:
- Extended repayment plans
- Leases
- A limited car selection
- Buyers with excellent credit
If you want to spend as close to the sales price as possible on a car that meets your needs and spending plan, ask questions. Take the time to review the fine print and weigh your options.
Financing your next vehicle should be done with your eyes wide open, whether at a car dealership or with a financial institution. Compare financing options to determine the best match for your financial situation.
