Car Finance Deals: Things to Know

First-time car buyers or others who have not gone through the auto financing process before may need some basic advice on car finance deals. Here are a few of the major considerations for getting good financing deals on a new or used vehicle.

• Low interest rates are key - the biggest variable that will determine how much money you pay on an auto loan is the interest rate. This is often called the APR or annual percentage rate. Always ask the lender for how much the interest rate will be over the entire term of the loan, not just in the first year, and then use an auto loan calculator to see how much you will be paying overall. Never finance by a “low monthly payment.” Get the interest rate details.
• You can fix credit problems - your credit score is directly tied to the interest rates that you can demand from a lender. If your credit score is low, you can boost it by taking out lines of credit or paying off existing judgments. Finding out your credit score is one of the most important first steps in a car financing deal.
• You don’t have to finance at the dealership - some first-timers get tricked into thinking that the best way to finance is with the dealer. Often, it makes more sense to go directly to another lender, and to shop around from different lenders for getting the best interest rates available.
• Upfront payment and short loan terms help - making a large down payment decreases the amount that you have to pay interest on. It also shows lenders you're serious about an investment. Short-term loans can also have lower interest rates, because there is less risk to the lender. Short-term loans and those with a large down payment are sometimes called “conservative” borrowing—and they will help you save a lot of money on a car financing deal.

Use the above tips to be wise about what kinds of car loan deals you get into for driving away in your next new or used vehicle.