Saving Money on the Car You Want
Car lenders are making car loans accessible to more buyers. This may seem like a good thing but it can cost some buyers hundreds or even thousands of dollars over the life of the loan. Without fully understanding the numbers and exactly what’s in your car loan you could end up overpaying for your next vehicle.
Whether you’re thinking about getting a new car or just got one whose loan agreement you don’t like, this show is for you.
You’re going to learn
- History of car payments or negotiating car payments upfront
- Walking you through a standard auto loan, what’s included
- How to save money long term for the price of your car
Step 1: The Auto Loan
There are 5 criteria potential lenders to look at when it comes to giving a new loan for a vehicle.
1.Your credit score
People with higher credit scores are more likely to get better auto loans.
2.Your ratio of debt to income.
Your debt-to-income ratio is how much money you owe in debt compared to the amount of money you earn.
3.Size of the loan and the down payment
Typically, a larger down payment lowers the size of the loan and obviously helps you get lower loan payments, too.
4. Length of the loan
The number of months you want to finance your vehicle can determine the amount of your monthly vehicle payments.
5. Age of the vehicle
You’re more likely to get a better auto loan rate for a new vehicle than you are for a used one because if you default on the loan for a new vehicle, it will still have a higher resale value.
Step 2: Places You Can Get an Auto Loan
1. Dealerships
Dealerships allow you to buy and finance a vehicle on the same day. Keep in mind you may get a better deal in the fall through the dealership only if they’re trying to get rid of its end-of-the-year inventory.
The downside of financing through a dealer may mean you may receive more expensive interest rates especially if you have a not so good credit score.
There is also a chance may sell your loan to another credit lender.
2. The Manufacturer
These special financing offers are typically good deals with ridiculously low-interest rates but they’re only available to people with excellent credit scores.
3. The Bank
Getting a bank auto loan means you’ll already know how much you can afford before you start shopping for your car.
Sometimes, a bank can negotiate lower interest rates and shorter loan terms which is better for you because the fewer months you pay the less you pay in overall interest.
4. Credit Union
It’s almost exactly like getting a loan at the bank except they may have higher interest rates.
5. Online
The last place to get an auto loan generally offers even lower interest rates than banks and credit unions is online because online has less overhead to pay for a building and employees so they pass the savings off to you.
Step 3: Research
Resources for fair prices for a new car
Resources for finding the true market value of a used car
Step 4: How to Save Money While Searching For a Car
Bill Management Booklet
Other Expenses
In addition to any down payment, you need to pay for taxes, title, and your tag which is your license plate when you first get a car.
If you’re already in a bad car loan you have at least 4 options to get out.
Option 1: Refinancing
You can adjust the length of the loan or the interest rate.
If your credit score has improved or market interest rates have gone down, you may have a better shot at reducing your interest rate.
Just like you would when you would get a new car compare loan offers with several different lenders, like your bank, a local credit union, and online loan search sites.
In general while getting a lower interest rate is always beneficial. Lengthening the loan contract may work against you because you’ll be paying interest longer.
Knowing if refinancing is the best option depends on 2 things, how good your credit is & how much longer you have left of the loan.
If you have 2 or more years left on the loan your goal should be to raise your credit as quickly as possible.
In a year you should be able to qualify for a lower interest rate which will save you hundreds, if not thousands of dollars.
If you have less than 2 years left on the loan the savings won’t be as great and you should just try to pay the loan off as soon as possible.
If refinancing seems like a good option to you here’s how to do it.
Refinancing auto loans is usually as simple as submitting an application.
No appraisal is required, and the fees are minimal usually less than $100 if there are any fees at all.
The only information you need to refinance your loan is
- Personal and contact information
- Previous address (if at current address less than 3 years)
- Residence status (own or rent)
- Monthly mortgage or rent payment
- Auto information
- Year of vehicle, VIN number, and mileage
- Remaining loan balance
- Current lender information
Option 2: Negotiate with your Current Lender
You may be able to negotiate a lower interest rate or work out a deferment arrangement where you can skip making payments for a period of time, but they will be added to the end of your loan term and you’ll ultimately have a longer loan and pay more interest over time.
Most lenders won’t be interested in helping you because they’ve already churned and burned you.
They already have you locked into an agreement so they have no interest in getting paid less money for the same loan.
Option 3: Cut back on other spending in your budget
I know that’s probably the last thing you want to hear but the sooner you pay off the loan the less you’ll pay in interest.
Be sure to check your contract because I’ve heard some companies penalize you for paying off the loan early.
Option 4: Sell your Car
I’ve bought a vehicle for nearly half off because the owner was selling it and using the money I was paying him to pay off the balance of his loan.
This is only going to work if your vehicle is newer. The older your car is the less it is worth due to depreciation. Cut your losses and get rid of it if you aren’t too far upside down, meaning the current value of the vehicle is worth less than what you still owe on the loan.
Furthermore, if you’re upside down in your loan there are some strategies to get out of this bad situation.
First, you’re going to want to know exactly how much money it takes to satisfy the loan agreement, not just the principle of the car, but the principal plus the interest.
Second, check out how much your car’s resale value is worth using KBB.com
If you’ve kept your car in good condition meaning you’ve washed it so the paint is in good condition and kept the inside clean it should have a higher resale value than if you weren’t so kind to your car.
Once you enter all the details it’ll give you an estimate of how much you should expect to receive for a trade-in on the car.
Subtract the actual price of the car which is the principal plus interest from the trade in price to see how upside down you are.
If you’re not very upside down cut your losses, trade it in and get a better deal.
If you’re very upside down you still have options:
If your interest rate is sky high on your car, I’m talking over 10% selling the car, buying another one in saved up cash and covering the portion you were upside down in with a personal loan may be a good move.
A personal loan typically has interest rates that average at almost 11% if your car has an interest rate higher than that it may make financial sense. Be aware that a personal loan has a shorter payback period which is good because you won’t be paying as much in interest you will have to fork over more money monthly.
Disclaimer: I am not a financial advisor so please do the math first to make sure this makes sense to you.
If your interest rate is below 10% it typically doesn’t. But if it’s way higher than that it could be a win for you.
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Here is a list of resources mentioned in this episode:
New Car Prices Edmunds.com or TrueCar.com
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