Paying for a car outright is not something that's within everyone's budget or best interest. However, the concept of taking on an auto loan can leave many feeling anxious about the whole car-buying process. The good news? Being successful in financing your next car is not a difficult feat. If you want to make sure you're getting a great deal no matter your situation, here are a few critical tips for success that will allow you to walk away from the dealership fully satisfied with your next car purchase.
Establish a Budget Prior to Visiting Your Local Dealership
The concept of purchasing a new car, whether you simply want a new one or you desperately need one to get around, can be exciting. In this excitement, it's pretty easy to make poor financial decisions that can leave you with unmanageable monthly payments. The last thing you want to do is purchase a new car, only to experience financial issues as a result or find your car repossessed later on.
Make sure you establish a budget and know how much you can realistically afford before buying online or heading to the dealership for support. This knowledge will guarantee a set limit you refuse to go over, so you don't end up making a purchase that you regret later.
Consider Your Credit Score and Get Financing Quotes in Advance
Much like your ability to get an apartment or apply for a mortgage, your credit score and history will inevitably play a role in financing your car. However, most loan providers will work with those with low credit, even though low credit scores often pose a more significant issue in housing. The catch? Those with lower credit can expect to pay substantially more.
For example, if your credit is good, with a score of 700 and up, you can expect to pay interest rates above 3% but less than 10%, with higher scores fetching some of the most attractive interest rates advertised at dealerships. However, those who have credit scores less than 650 can end up with interest rates of around 10% or more. The lower your credit score is, the higher your interest rates.
At this point, you have two options. You could either work on your credit and rely on your current car until you get better interest rates or you can settle for the interest rates and get a quote before you walk into the dealership. Whether you use an online lender or a local bank, obtaining these quotes may allow you to bargain with your dealership and get a better deal. Of course, you can also get financing through your dealership. Knowing your credit score is essential to fetching great interest rates, no matter which path you take.
Do Your Due Diligence and Understand Loan Terms and Options Prior to Signing on the Dotted Line
Sometimes, financing and loan agreements seem like an entirely different language. However, understanding your options and how they impact you are crucial to avoiding agreements detrimental to your financial health.
For example, take something as simple as your loan term. While a longer loan term and smaller monthly payments may seem like the best option in the moment, the reality is that longer loan terms can often cost you more in interest than the cost of the actual car itself. Meanwhile, shorter loan terms may require larger monthly payments, but you'll be able to pay your car off sooner and avoid mounting interest payments that extend your repayment plan.
Researching your options, weighing the pros and cons, and knowing what terms are best suited for your financial situation will make the financing process that much easier. Before you even start going through financing options, make sure that you understand what you want in a car loan, so you don't find yourself signing a loan agreement that doesn't work for you.
Save Up for a Down Payment and Associated Fees
High monthly payments are not for everyone, especially if you live paycheck-to-paycheck, are already stacked with monthly payments for things like medical or phone bills, or you are in some other type of vulnerable situation. However, you can reduce the overall amount you pay on a monthly basis by setting aside a decent amount for a down payment. While many dealerships will allow you to drive away without a down payment, it doesn't make financial sense. Try to save up for a minimum of a 20% down payment. This will reduce your monthly payments and keep you on track financially, even if it costs you a bit more upfront.
Another thing to keep in mind is fees like sales tax, documentation fees, and extended warranties. The cost you expect to pay for your car doesn't generally take into account all of these extra taxes and fees. Instead of adding these onto your financing, have cash on hand to deal with these so that they don't affect your monthly payments. The more prepared you are, the better deal you're likely to get.
Let CarSmart of Farmington, Missouri, Help You Through the Financing Process
If you live in Farmington, Missouri, and you're looking to purchase a used car with financial support, let CarSmart of Farmington guide you through every step of the way. We're here to ensure you have all the tools you need to understand which options are at your disposal, from pre-qualification to pre-approval. If you want to see how much you'll pay, you can use our monthly used-car loan calculator. If you need extra protection for your car and you need to know how much that costs, you'll find that we're transparent about what you can expect to pay.
To put it simply, buying a used car at CarSmart of Farmington means never having to do any guesswork when it comes to financing. If you have any questions or need help with any of our tools, contact us today!
