Buying a new or used car is often leaps and bounds more costly than the price that initially attracts us. We learn given one number upon walking into a dealership then leave having committed to a much larger sum. Did you know that the average American borrows over $28,000 for a new car? And that doesn’t include the amount those consumers saved ahead of time toward a down payment.
28,000 is no small sum, so it’s important that you get the best financing deal possible. Loans terms range on average from 3 to 8 years. Often we think we’ll just drag the terms out longer to give ourselves more time. More time equals lower monthly payments which means we can afford that extra vacation or new computer. But remember, the longer you extend your loan, the more interest you accrue, and the more you pay in the long run!
Finding financing can be rather confusing. With all of the hidden fees and acronyms just many of us don’t even know where to start. That’s why we’re here to give you a rundown:
Get a loan directly from a bank, finance company, credit union or other financial institution. You negotiate with your lender on your own terms and get financing that works just for you.
Sit down with your dealer after choosing your new car. He or she will shop around for financing options for you. After you choose your preferred option, the dealer will secure the loan. This loan will come through manufacturer’s finance, a bank or credit union with which they have established relationships. It’s important to note that the dealer profits from financing your vehicle often more than from selling it to you.
In either scenario, the lender becomes the official lien holder of your vehicle. A lien holder is an entity that has given you money to buy a vehicle or leased you a vehicle and is therefore included on your policy.
Your lender remains the lien holder until you’ve made all monthly payments, on principal and interest, and the loan is paid in full. The lender will then issue you a release of lien. After settling the tab, you become both the vehicle’s registered and legal owner.
|Direct Lending||Dealer Financing|
|Ability to shop around for the best interest rate||YES||NO|
|Ability to work with your existing bank or financier||YES||RARELY|
|Prevent temporary credit score reduction from multiple checks||YES||NO|
|Discount for direct deposit||OFTEN||RARELY|
|Manufacturer cash back||NO||OFTEN|
|Convenient paperwork completion||NO||YES|
Tips for Dealer Financing
First go it alone and find financing before arriving to the dealership. Then walk in with a competitive offer in writing from a direct lender. The ‘in writing’ part is important as it acts as proof to force the dealership to give you their best possible offer. Negotiate the price of the vehicle first.
Avoid discussing financing details such as monthly payments until the price is decided on. Don’t be swayed by low monthly payments or cash back deals. Make sure that taking a dealer’s financing option doesn’t mean you’re forfeiting your chance to participate in other incentive programs.
With whichever option you choose, always remember to prepare and be confident. Soon you’ll be on the way to having the car you want at the price you deserve!
Don’t forget to check our video on negotiations for more information on the entire process.