Anna Fleet

08/14/2007

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Car Loan Shopping Tips That Will Keep You Out of Troubled Water

How to Avoid the Sharks When Looking for a New Auto.

When you’re in the market for a new car, sometimes it’s too easy to let your excitement get the better of you. A potential buyer can be blinded by the sleek curves on a sexy sports car – so much so that they don’t see that outrageous sticker price, or consider how much buying a car they can’t afford will hurt them in the financial long-run.

That’s why the smartest thing you can do when buying a new car is pay cash! Sure it sounds ideal, but not many of us are blessed financially with the ability to pay cash and drive off the lot in a shiny new automobile. Most of us will realistically end up financing a new vehicle via a car loan from the bank or dealership. That’s why we’re here to bring you back down to earth – even though we know you’re going to get all lusty over that new car. That’s what the car salesman wants. He wants the hum of that new engine to distort your better judgment, you know, the practical side of you that says “I can’t possibly afford that car”!

If you purchase a new automobile based on pure “car lust” you will end up struggling with the high costs of financing just to be able to afford a car that is way out of your price range. The worst thing you can possibly do is go to a car lot without a firm maximum spending price in mind. It’s also wise to research a few dealerships, and ask them about their financing options. Going to purchase a car prepared and with a maximum spending price in mind can prevent you from making a car purchase that will put you in financial troubles for years to come.

Our top car loaners shopping tips

Be mindful of your budget - Before you start perusing the car lots, you need to decide on your maximum spending price. This means how much can you afford in car payments every month? If you’re unsure how to go about this calculation, try using one of the numerous car payment calculators available on the Internet, for example Yahoo Autos’ handy auto payment calculator even figures your trade in value and any car buyer’s rebates into the equation. If you have your eye on a certain make and model of car that you’ve priced out of the newspaper or from the manufacturer's website, don’t be ashamed to print off the pricing sheet and take it with you to the dealership. They have no shame in adding extra dollars to what it’s actually worth to try and get more out of you, so don’t be afraid to bring your back up research!

Shop around for the best auto loan interest rates – Most banks will offer the same, or relatively the same interest rates on car loans. However it’s helpful to be mindful of what the most current average interest rates on car loans are, so that you don’t sign a loan agreement with a ridiculously high interest rate that you could have secured with another bank at a much lower interest rate. Believe it or not your interest rate can really drive your payments up. Take for example a car that has a sticker price of $15000. You could be offered one loan with a 3% interest rate and another with a 6% interest rate. It’s just 3% right? Wrong! That extra 3% will add $23 a month to your car payment. Now month by month that might not seem like a lot of money, but over an entire year that 3% interest rate could have saved you $276. You can get a handle on the most up-to-date interest rates that banks are offering on car loans by visiting bankrate.com, they post a current feed on national auto rate averages.

Be careful with stretchy loan terms – The most ironic thing about loans is the way they can be manipulated by car salespeople on commissions. For instance let’s say I walk into a Toyota dealership with my eye on a brand new 2008 Toyota Matrix priced at $15,500. Now I tell the salesman that I can only afford monthly payments of $300 a month maximum, using our average interest rate of 6%. Well the car salesperson will manipulate the term of the car loan in order to suit my maximum payment. So the Toyota Matrix with its ticket price of $15,500 will only cost me $300 in monthly payments – if the car loan is stretched over a 5 year term. However if I don’t want to make monthly payments for a car for the next 5 years of my life, I should be looking at a car within the $10,000 range. This is because I will pay a $10,000 car off in 3 years with payments of roughly $300 per month. So don’t ever wait till you get to the car lot to do you math. Remember the car salesperson doesn’t have your financial future in mind. They only care about satisfying you by getting the monthly payment closest to your budget. Just remember they might be stretching out your car loan’s term in order to make sure the monthly payments suit your budget. The best way you can prevent yourself from being fooled by stretchy car loan terms is by not only knowing the maximum monthly payment you can make, but also figure out the maximum price you can afford to spend on the car in total.

Scout manufacturers for special incentives and rebates – On any given month auto manufacturers will offer customer rebates and incentives on their vehicles. You can find out which auto manufacturers are offering incentives by keeping dibs on the car manufacturer you want to buy from, or by becoming a reader of an auto consumer blog. Take for example the bargain auto shopper’s blog My Favorite Cars. They keep consumers up-to-date on the most current incentives and customer rebates offered by various auto manufacturers (these customer incentives were current at the time this article was published):

• Nissan was offering a customer incentive of $1,750 on its 2007 Frontier Nismo King Cab.
• Get a $3,500 incentive on a 2007 Jeep Liberty Limited!
• Pay $2,500 dollars less on a Mazda B-Series Truck B4000 SE thanks to current Mazda.
• Drive away in a 2007 Dodge Ram – and pay $5,000 less thanks to Dodge’s incentives.

Keep up-to-date on the most current customer incentives and rebates, like the ones above, being offered via manufacturer’s sites and auto consumer’s blogs. Be sure to print them out and take them with you to the dealership.

Know your trade in value - Before put your current car up on the trade-in block be sure to visit your mechanic or some auto retail websites to see what your car is going for as far as trade in value. You can bet the dealer won’t give you what your car is worth as a trade in. If they refuse to give you what you’re mechanic says the car is worth, then don’t trade it in - sell it on your own.