Tips For Saving On Your Car Loan
One of the biggest mistakes people make when buying a new car is forgetting to include the cost of auto financing in the total price.
For example, if you’re buying a new Honda Civic, the difference between “sticker price” and the dealer’s invoice price (what the dealer paid for the car) is about $1,500. If you negotiate well, you could save $1,000 or more on the price of the car.
If you then finance the car for four years at 6% with nothing down, you’ll pay over $2,000 in interest. Financing the car for three years at 4% with a $1,500 down payment, however, can save you over $1,000.
If you’re willing to negotiate the price of the car, you shouldn’t ignore the rates and terms of your financing. I made this mistake the first time I bought a car and vowed never to do it again.
If you’re in the market for a new car, don’t wait until you’re in “the box” (what some dealers call the offices where you finish the paperwork) to think about your financing. Instead, you should be sure to plan ahead and compare rates from multiple different lenders in order to ensure you’re getting the best deal possible.
Tools like Monevo can help you to compare rates from different lenders quickly and easily online. Monevo lets you compare over 30 different lenders and banks, and it takes just a few minutes to get personalized loan offers. The process doesn’t affect your credit score, and the Monevo is completely free to use.
Even if you don’t select a loan from one of the lenders Monevo partners with, knowing what rates you qualify for can help you to be better prepared when it comes to negotiating with car dealers.
Auto financing tips
You car is not an investment. Quite the contrary: Cars depreciate like crazy. For this reason alone, it’s not smart to pay interest on a car loan. What happens in most cases is that the car depreciates and the value of the car drops faster than you repay the loan, leaving you upside down or underwater (when you owe more on the loan than the car is worth).
That said, many of us need cars to get to our jobs and don’t have the cash lying around to buy a reliable ride. So we get a car loan. That’s cool, but there’s a difference between using a car loan wisely and using it to buy a lot of car you can’t afford.
I have the credit and income to go out and get a loan for a BMW M3. And I would love that car. But that doesn’t mean I should get it. What the dealerships will tell you you can afford and what you should spend are two very different things.