The Hidden Costs Of Car Loans
If you’re considering buying a car, or even just refinancing your current auto loan, you’ll benefit from some simple research before making a final decision.
Lenders depend heavily on your FICO and other information found in your credit report when they are determining whether to extend you credit and what interest rate they will offer you. Knowing this information and having a good idea of your credit worth is important.
Remember to request a copy of your credit report from the three reporting agencies and go over them with a fine tooth comb before seeking a car loan.
[Equifax: PO Box 740241, Atlanta, GA 30374; www.equifax.com
Experian: PO Box 2002, Allen TX 75013, www.experian.com
TransUnion: PO Box 2000, Chester, PA 19022; www.transunion.com]
Sometimes dealers will offer you a seemingly unbeatable deal, like 0% interest. That may seem great. But think it through before signing. It may be better to take a loan with a low interest rate that also gives a cash rebate.
For example, at 4% with a $2,000 rebate on a 36-month loan, your monthly payment will be $30 lower and you’ll save over $1,100 on the total cost over a 0% loan. You can run various scenarios yourself by using one of the readily available online loan calculators.
Always be sure to pre-arrange financing before you go car shopping. That has a number of benefits. You’ll find out in advance how much the loan can cost you and what you can afford, both in terms of monthly payment and total cost.
The purchase price of a car is often contingent on whether the dealer will make the loan. Dealers are more willing to bargain on the price of the car if you allow them to finance the purchase. Be sure to do some research to find out the starting point of your trade-off amount.
It may well be worth accepting their financing offer if the purchase price is low enough. You can refinance the day after, after all. That too has costs, though, so be sure to include that in your calculations.
Having your financing set before shopping gives you great buying power. If a dealer is not offering a good price you can confidently move on to another dealership. The value of a new car is basically the same anywhere. It doesn’t hurt to shop around. It is good to consider, however, the reputation for service after the purchase that each dealer has.
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