Questions When Financing a Car

As you head into the dealership to buy a car, there will no doubt be a million things going through your mind.  Among them, the wonderful feeling of cruising down the street in your new ride is probably topping the list.  It’s time to let the voice of reason in, and try to calm that excitement long enough to save you some money.  The dealership will try to use your excitement to extract more money form you than you can afford, so come armed with knowledge. 

Unfortunately, not all of us have all the knowledge we need hard wired into our brains.  Here is a list of questions that you should not only ask at the dealership, but walk away if you don’t get satisfactory answers. 

What kind of interest rate on a car loan am I going to get?:  This little number (APR) determines your monthly payment and how much you end up paying for the car over the life of the loan.  Always come prepared with the knowledge of current interest rates on auto loans before letting the dealer tell you what the auto loan rate should be.

How much will this car cost me?:  After you settle on a price, loan terms, and sit down to sign, you should know how much you’re going to pay for the car, including interest, fees, and taxes.  This will allow you to make a much more informed decision regarding whether you buy or not.  This is time to sit back and examine the numbers.  Do not rush ahead unless you are comfortable with the total car cost.

How much of that cost is financed?:  Your down payment goes toward the purchase price of the vehicle and lowers the amount of the loan.  You need to know how much you’re borrowing, because that amount is going to start growing once you sign the loan.  This may sound simple, but often these figures are reviewed at the time of purchase.  To avoid pressure, get these numbers upfront before a sales contract is drafted.  Know the car loan interest rates available and know the amount of the loan you will be getting.

How much is the monthly payment?:  For budgeting reasons, you need to know exactly how much your payment each month is going to be for this loan.  Include in that amount are any costs for obtaining the financing or processing fees.  You should also know how much of each payment is going to principal and how much to interest. The monthly payment is going to be a reflection of the car price, down payment, interest rate and loan term.  Know what these numbers are and what other options are available before executing the contract.

How many payments do I have to make?:  Very good to know, since you’ll be making one payment every month for the life of the loan.  It pays to know when you’re done paying on it.

Is the deal done when I leave?:  The old bait-and-switch game is still alive and well. Sometimes a dealer will get you set up, signed and let you drive away, only to call you later and tell you that your loan didn’t go through, but you can get another one at a higher rate. Uh-Uh.  This problem can often be the result of contingent financing that the dealership did not have approved.  Don’t let this happen to you.  This is another significant reason why direct financing of car loans from a lender other than the dealership can be a wise choice.  Make sure that when you sign the paperwork, that car is yours for what the paper says.  

What kind of restrictions are written into my loan agreement?:  Sometimes paying a loan off early will cost you a fee.  Ask about it before you sign, and find out if you will be allowed to pay the loan off early with no adverse effects.  Watch for any extra charges including add-ons like credit insurance.  Federal law doesn’t require credit insurance on auto loans, but some states do.  Bundled insurance charges are costly.  These services can usually be acquired for a cheaper rate- if you need it.  Watch for any and all extra rates, fees and insurance.

Remember that when you are shopping for a car, you are the boss.  The dealership wants to make money, and they do that by making you happy.  Financing is a big part of buying a car, so always make sure you know what you’re getting into.  Research car loans and car loan rates before letting the dealership try and takeover.  If they won’t make you happy, walk away.  Come back later and do the whole thing over again.  Don’t give up on getting what you want.

Tags: car loan rates, used car loans

This entry was posted on Saturday, February 21st, 2009 at 3:38 pm and is filed under Articles. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.