A Car Buyer's Mistake

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Keep your car buying costs as low as possible.

Buying a car is a major purchase. Budgets are tight. It’s tempting to accept financing based on the lowest monthly payment, but don’t. Here’s why.

Lower monthly payments often mean longer loan terms and higher interest rates. You may be able to obtain 84-month term (7 year) financing and a budget-friendly monthly payment, but you’ll pay more over the life of the loan. You also risk becoming upside down on your loan, owing more money for your car than it is worth.

“Don’t be payment-driven,” says Kelly Ailey, lender, RCB Bank. “Save up as much as you can and negotiate the sales price down, not the monthly payment.”

To keep your car buying costs as low as possible, Ailey offers these tips.

  1. Know your credit score. More importantly, know the details in your report. Your credit score will determine which loan you will qualify for and the interest rate you’ll pay. Start reducing your current debt now to improve your score and financing options.
  2. Get pre-approved. Know the exact amount you can spend before you start looking (and stay under that number). Start with your financial institution and shop around. A banker can also access car evaluations to improve your bargaining power with the dealership.
  3. Focus on price. Know what the car is worth, not what the dealer tells you it is worth. Do your homework. Check NADA guides. Shop online. Compare dealers. View the car evaluation with your banker. Then go to the dealership and negotiate a fair purchase price for the car, not your loan payment.
  4. Decide needs versus wants. Do you want the pricey 2017 model or would are you willing to accept a less expensive model and save more money? New or used, save up as much money as possible before you shop. You’ll be able to borrow less money and pay a higher monthly payment with a lower loan term. Both will save you money.

Avoid the payment-driven temptation and start saving up now for your next vehicle. In the meantime, explore your financing options and ask your banker what you can do to improve your credit score.

One final piece of advice Ailey offers: “Don’t be afraid to walk off the lot.”

“Don’t rush your decision and accept the first offer,” Ailey said. “It’s your money and your life. Be good to yourself.”

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