Generally, you have two options for car finance: direct loan or dealer financing.
A direct loan means that you borrow money from a bank, financial company, or credit union. In the loan, you agree to pay the financing amount within a certain period of time, plus the financing fee. Once you are ready to buy a car from a dealer, you use the loan to repay it.
You can do this through direct loans
Determine your credit terms in advance. Before buying a car, you know the loan terms, including the annual interest rate (APR), loan term (months), and the maximum amount you can borrow by obtaining loan approval in advance. Use this information to negotiate with dealers. APR is the annual cost of credit. It is based on several factors, including your credit rating, the amount of your loan, the interest rate and the cost of credit you charge, and the duration of your loan.
Comparison between dealers. With pre-approval, you can more easily ask the dealer to provide written "outdoor" prices for cars you may be interested in so that you can determine and negotiate the best deal for purchase and financing without spending time with the dealer.
Dealer financing means that you apply for car finance through dealers. You sign a contract with the dealer, buy a car, and agree to pay the financing amount and financing expenses within a period of time. Dealers usually sell contracts to banks, financial companies, or credit cooperatives, which will provide services for your account and collect your payment.
Dealer financing may be available to you
Multiple financing options. The dealer's relationship with various banks and financial companies may mean that it can provide you with a range of financing options. However, keep in mind that dealers usually profit from providing financing and may not always provide you with the best deal.
Special procedures. Dealers sometimes offer manufacturer-sponsored, low fee or incentive programs. They may be limited to specific cars or have special requirements, such as a larger down payment or a shorter contract term. These projects may also require a higher credit rating. Check if you are qualified.
Buy the best financing transaction
Compare the financing schemes of several creditors and dealers. Remember, don't just focus on monthly payments - the total amount you have to pay depends on the negotiated price of the car, APR, and the term of the loan.
Many creditors offer long-term loans of 72 or 84 months. Although these loans can reduce your monthly payment, their interest rates may be high. And the longer the term of the loan, the higher the overall cost of the transaction. Once you drive away from the parking lot, the car will soon depreciate, so if you make long-term financing, your debt may exceed the value of the car itself.
Some dealers and lenders may require you to buy credit insurance, which will repay the loan if you die or become disabled. Before you buy, consider the cost and whether it's worth it. Check your existing insurance policies to avoid duplicate benefits. Federal law does not require credit insurance. In fact, it is illegal for a lender to fraudulently include credit insurance in your loan without your knowledge or permission. If your dealer asks you to buy credit insurance for car financing, it must be included in Apr.
Be sure to ask the dealer
Car accessories. Add ons are not free. They are extra things you can buy when you buy a car. Common add ons include gap policies, window etching, extended warranty, and service contracts. You can say no to the additional products and ask for the price. It is wrong for the dealer to add additional terms or lie in your transaction. Know exactly what you want to buy and protect yourself. Before you visit the dealer, ask the dealer to list the price of any suggested additional products. If you are financing, you will want to know how much money you need during the term of the loan. Ask about any restrictions or conditions that the add-on may have. They may not cover what you expect. If you don't want or need it, say "no".
Manufacturer's incentives. Your dealer may provide incentives to manufacturers, such as reducing financing interest rates or cashback for some models. Be sure to ask your dealer if there are any special financing offers for the models you are interested in. Generally speaking, these discount rates are non-negotiable and may be limited by your credit history. Get a written answer from the dealer.
Rebates, discounts, or special offers. Ask in advance if you are eligible for any offer. When dealers promote rebates, discounts, or special prices, they must clearly state what is eligible. Look carefully for restrictions. For example, sometimes you have to be a recent college graduate or soldier, or only for a specific car. Do not assume that any rebate has been included in your price or terms. Similarly, you need to answer your questions in writing.
Your annual interest rate (APR). You can negotiate APR and payment terms with the dealer, just as you can negotiate the price of the car. The APR you negotiate with the dealer usually includes the amount to compensate the dealer for processing the financing. Negotiations can take place before or after the dealer accepts and processes your credit application.
Ask questions about the terms of the contract before signing the contract. For example, are these terms final and fully approved before you sign the contract and leave the car dealership? Is the price in your contract consistent with the price given to you by the dealer in advance? If the dealer says they are still in the approval process, the transaction has not been finalized. Consider waiting to sign the contract and keep your current car until the financing is fully approved.