Are you looking into buying a car? Or refinancing an existing car loan? This article is an excellent starting point of your research. Lets roll ...
You should begin by requesting your credit report and FICO score. These two in combination will give you an idea of how lenders view you. This helps answer the simple question 'Credit-worthy or not?'. The higher your creditworthiness, the better interest rate you will get on your loan.
Its best to request copies from all three major credit bureaus. This is because you never know which report is favored by a lender. Also, this will help iron out any inconsistencies in these reports early in the process.
1) Equifax: PO Box 740241, Atlanta, GA 30374; www.equifax.com
2) Experian: PO Box 2002, Allen TX 75013, www.experian.com
3) TransUnion: PO Box 2000, Chester, PA 19022; www.transunion.com
The next thing to do is figure out the numbers that make sense for your situation. There are times when a 0% loan is on offer by the dealer. This is enticing in comparison to a 5% interest rate or higher. Before you jump on the deal, take another look at the offer. You could be in a better financial position by capitalizing on a cash rebate instead.
This will be clearer with an example of your monthly payment calculation.
In the event that you get a 36-month loan at 4% with a $2000 rebate, your payments (monthly) will be $30 lower. You would also save a little ove $1100 over the cost of the 0% loan. Always run the numbers. If you are a little math-phobic that's okay. Use one of the many online loan calculators available.
Before you go car shopping, you should make arrangements for the financing. This approach has a number of advantages. This will help figure out your budget and how much the monthly payments you will have to make for a loan amount.
One point that people often overlook is that you have a advantage while negotiating the price with the dealer if you will get approved for the loan or not. Fairly often the dealer will take you up on the lower price if their financing offer is acceptable to you. As mentioned earlier, do the numbers before you go car shopping.
One tip regarding accepting dealer financing. If you think the offer is within your price range you can accept it. But nothing prevents you from refinancing the day after. There are costs associated with refinancing a loan. So, do take those into consideration when doing the math.
One added benefit of having researched financing options is advance is your increased ability in weeding out the bad deals. Sometimes you will get different offers on virtually identical cars at different dealerships. Since you have run through different numbers before you will be able to compare deals easily. Of course, do factor in the service you will receive post-purchase in your final buying decision.
Lastly, look at the advantages and disadvantages of leasing versus getting loan or even some other form of financing. For instance if you own your own place, a home equity loan or line of credit could give you access to cash at lower rates of interest.
In the beginning this may seem like a lot of work. But as you get more experience you will get more creative in your financing options being fully aware which ones save you the most money.
