HOW TO CORRECTLY FINANCE A CAR
For many of us, an automobile isn’t just something that’s nice to have: it’s a necessity. You need to be able to get around to buy groceries, do chores, and get to work. Having a reliable automobile at your disposal is just a basic need of modern life.
Unfortunately, automobiles are often quite expensive. Even if you’re buying a used car, getting the funds together you need to pay for the vehicle can feel quite overwhelming. Figuring out how to pay for a car can be as hard or even harder than finding the right car, to begin with.
For a long time, I was firmly against taking out a car loan to purchase an automobile. I was always a fan of paying cash, and Mrs. Money and I have paid cash for all our cars to date. However, I’ve come to accept that a car loan might not be the worst thing in the world. Interest rates are often low, you can sometimes get a better deal, and you can use the money elsewhere (i.e. investments or paying down higher interest debt). So, with that in mind, let’s explore a few checklist items for
GET YOUR PERSONAL STUFF IN ORDER
Before you look outward, look inward. This is an important life philosophy, and it’s just as true in automobile shopping as it is anywhere else. Before you can start working out finance deals, it’s important to get your own financial situation in order.
Primarily, that means making sure your credit score is as strong as possible. When making a deal to finance an automobile, your credit score will come under scrutiny. If it is less than stellar or downright poor, you’re likely to get a much harsher deal than you would otherwise. You could also be downright rejected altogether.
If your credit score is bad, it’s well worth taking the time and effort to get it up before you go out and try to purchase an automobile. Yes, it can be frustrating and even time-consuming to get that score up, and you’ll need to lean on a lot of positive spending habits.
But if you don’t need your new automobile right-this-second, you can save yourself a lot of money by waiting until your score is up to pursue financing options.
CREATE A REALISTIC BUDGET FOR YOURSELF
It’s easy to get lost in the flashy process of buying a new car for yourself. Something might catch your eye, numbers get thrown around that seem like one thing but mean another, and so forth.
You need to have a very strong hold on what you feel like you can and can’t afford or you can end up in a bad situation. Take an honest look at your personal finances. How much can you personally afford in terms of a down payment?
The more money you can put down upfront the better terms you’ll probably receive for the rest of your deal. Putting a very small or no down payment will probably saddle you with interest rates through the roof.
The best practice is to put something close to 20% of the car down as a down payment. No lower. You can use this percentage plus what you think you can currently afford to spend to help give you a broader sense of your true car budget.
If you’re short on the funds you need, you can always turn to somewhere like the Murdoch Finance Company to help get the money you need.
KEEP YOUR EYES OPEN TO FINANCING OPTIONS
With a budget in hand, you’re much more prepared to go out and find the car of your dreams. The easiest thing to do is likely to head straight to the car lot and ask about their financing plans.
But if you really want the opportunity to save money, you might want to hold off on that line of action. Because of the convenience, most car dealerships don’t offer terms that are as advantageous as other financial institutions might.
Because of this, it can be well worth your time to look around and see if there are any other options that can help to finance your car. There are a lot of other places, online and in-person, where you can shop around for auto loans. Your local bank, a credit union, or even your credit card company may offer lower rates for a car loan.
Finding somewhere with a killer rate might be just a few clicks away. Rate shopping won’t hurt your credit score either, so there’s no harm in looking around and trying to find something good as long as you have the time. You’ll get approved and get cash in hand to walk up to the dealer – making it fast and easy!
TRY TO KEEP YOUR FINANCING TERM SHORT
No matter what lender you go with, they will likely give you a number of options when it comes to your financing plans. Lower terms often get you a better interest rate, and you’ll likely notice this trend as you look through the plans presented to you.
Shorter-term loans also mean higher payments per month, of course. Still, if you have the funds to be able to manage these payments, going with a shorter-term loan can certainly save you money in the long run. Interest rates can add up to large totals over longer periods of time. Unless you have to go this route, it isn’t recommended.
Shorter-term finance plans also mean less time until the car you’re driving is officially yours to keep! That’s a goal with working towards fast as long as you have the means available to you.
HOW TO PAY FOR A CAR THE SMART WAY
When it comes to learning how to pay for a car, there’s a lot of different routes you can take. The above information should help you determine how to finance your next car purchase in the smartest way possible.
Do you need more personal finance tips and tricks? Check out our blog for more information.
Disclosure: Some links are affiliate links that may earn me a commission.