For many people, buying a car is one of the biggest investments you’ll make, second only to buying a home. Paying cash is always ideal—but most people need a loan to pay for their car, whether it’s new or pre-owned. Here are a few things you should know about vehicle loans before you start shopping:
1. Review your credit report first
Your credit score is one of the most important factors in determining what rate you will receive for your loan. If you haven’t checked your credit report lately, you can obtain a free copy from all three credit bureaus by visiting www.annualcreditreport.com. It’s important to begin here because even though federal law requires lenders to give accurate information, mistakes do happen. If you find errors, you can have them corrected since they could potentially prevent you from getting the best possible loan rate and terms.
2. Get Pre-Approved, then Shop
It’s always a good idea to walk into a dealership with a financing offer from a credit union or bank already in your hand. A pre-approved offer guarantees that you have a loan to cover the cost of the car you want. It may give you some additional leverage in negotiating the best price as well. With a lender-approved certificate in hand, you’re considered a “cash buyer” at the dealership. Baltimore County Employees Federal Credit Union offers pre-approvals to help you stay within your budget and speed up the buying process. Once pre-approved, you’ll have 60 days to purchase the vehicle you want.
3. Calculate Costs Before Accepting
While you may have a figure in mind of how much you want to pay each month, it’s a good idea to understand the factors that go into setting your monthly car payment. The APR (Annual Percentage Rate) is only one of them. Other factors include: the total loan amount, whether you have a down payment or trade-in, and the loan term. Use our Auto Loan Calculator to play with the numbers—it could save you thousands in the long run!
4. Understand Dealership Financing
Sometimes dealership financing can seem to be the more attractive offer. Deals like 0% financing and large cash back rebates often sound like the best option.
Remember, that most financing options are only available to well qualified buyers. If you have anything negative on your credit report, your FICO score isn’t high enough, or limited credit experience you most likely won’t qualify for these options. In addition, sometimes these deals are only offered on specific makes and models. Taking manufacturer rebates with low-interest credit union financing can often save you more money than a 0% rate in the long run and isn’t as difficult to obtain for most people.
Financing your new or pre-owned car is a great way to get the vehicle you want without sacrificing. Keep these tips in mind before saying yes to anything. When you do your research, get pre-approved and run the numbers, you’ll drive away feeling good about yourself and your financial situation.