If you can buy a car with cash, do it. You’ll spend less, won’t pay interest on a loan for years, and be debt-free. But that’s not an option for everyone. If you need to finance a car, let’s make sure that you don’t spend a fortune on interest payments and fees. Here’s how.
Check Your Credit
Start by checking your credit score and your credit report. If your score is not excellent, try and work on it till it is. The better your credit score and history, the better terms you will be offered for a car loan.
Save for a Down Payment
Don’t borrow the entire amount. Show lenders that you’re responsible by saving up at least 20% of the price of the car for a down payment. It’s best to minimize how much you will borrow for a car.
Know How much to Spend
Now, make a list of your needs, not your wants, regarding the vehicle. Ensure that the car you look for will do the job you have for it. This will help you understand which vehicles work and give you an idea about how much you’ll have to spend.
Understand Taxes and Fees
Now check how much you have to pay in additional taxes and fees like dealer and licensing fees. Do your research and save up to pay for these in cash. There’s no need to pay interest on these things.
Shop Around for Financing
Now, make the rounds with banks, credit unions, and online lenders to check who can offer you the best terms for a car loan. Credit unions are often excellent options, and if you’re a member, you should check out their services.
Choose a Shorter Term
When you get financing options from lenders, try and keep the loan term as short as possible. This will mean higher monthly payments, but you will pay less in interest and get debt-free sooner.
Pre-Arrange Financing
Arrange all your financing and, ideally, get preapproved for a car loan before you step into a dealership. If you walk in having secured financing, you can negotiate a better price. Or you can ask the dealer to beat the offer you already have.
