I'm in the market for a new car. While I wish I could pay cash up front, I unfortunately must borrow the money; however, I don't really know the ins and outs of financing. Please help. – Larry Loan.
Dear Mr. Loan: AARP tells us that since new cars now sell for more than $37,000 and used ones for as much as $20k-plus, you're wise to investigate the best and least expensive avenues to obtain the safest loan for your wallet. Let's check out some first-rate approaches.
Remember that all-important FICO score. Forgive me for nagging over and over about checking credit reports, but I do so with readers' best interests at heart. The higher your score, the lower loan interest offered by the lender(s); According to AARP and FICO, a great score can get a 4.6% rate, while a terrible score could end up costing you 17% interest. Therefore, it's a must to maintain a score above 660-670. Along this same line, it's a good idea to keep an eye out several months before making this or any other high-priced acquisition. Consistently make payments on time (another "test") and pay down your debts as much as possible before applying for the new loan. Check WalletHub.com to get a free peek at your score and, also, check each of the Big Three major credit reporting bureaus (another nagger from yours truly) to ensure they don't contain any credit history errors.
Don't just depend upon dealer financing. We surely know at least a couple of weeks in advance we're going to go car shopping. Take this time to check other avenues: banks, credit unions, and even online auto-financing companies. These guys all give nonbinding preapproval on a loan; you might achieve a much better rate than what the dealer offers (even with all those "Let me check with my managers"!).
Once you've snagged that preapproved nonbinding amount, waltz onto the lot and choose the desired and affordable selection you want parked in your driveway. You're loaded for bear at this point as you're better equipped to negotiate with the salesman – and without Mr. Bigshot Manager heading your way. According to AARP and the Consumer Financial Protection Bureau, the dealership isn't required to offer a would-be buyer the best rate for which he or she qualifies.
However, once you've done your homework and have that special "pre-price" in your pocket, the company is much more likely to deal. Savings could include a lower rate, origination fees reduced or even waived, and/or – best of the best – a substantial drop in overall price. Just be certain you've developed the great credit score to be a dealmaker. (This reminds me of the time I was new car shopping. After careful preliminary study, the first words out of my mouth were, "I want to buy that car and I'll write you a check right this minute, but for only this amount. Please don't try to finagle or haggle as I'm not budging, and if you try, I'm walking out." Well, the salesman did but so did I! Before my hand barely touched the doorknob, he accepted my (fair price) business deal.)
Watch the length of the loan. Yes, the longer the loan, the lower the monthly payment so don't go for longer than five years or 60 months for a new auto. Not only do shorter terms give a lower interest rate but, also, interest has less time to accrue, reducing total costs. Sadly, if payments become delinquent and begin to accumulate, the lender can repossess the vehicle, varying anytime between one to three missed payments in a row. For that reason alone, if you can't comfortably budget the prospective buy, then think about a lower-priced vehicle.
Contact Ellen Phillips at consumerwatch@timesfreepress.com.
Ellen Phillips