By: Todd Ward | Category: Financial Services | Issue: May 2015
Todd Ward and Taylor Summers.
Buying a new or used car can be intimidating even if you’ve done it before, it can still be a whirlwind of negotiations and paperwork. For most people, buying a car is the second largest purchase they will make in their lifetime. A little preparation before you step onto the dealership floor may improve your car buying experience.
Get preapproved. If you know the financial institution you will be using to finance your next car, get preapproved for a loan so you know what is within your budget.
Car shopping is less complicated when you know your maximum purchase price. It’s easy to get blinded by a shiny new car and all the extras only to find it’s out of your budget. When you have your financing approved, you can focus on other aspects of purchasing a car like the dealership and car reviews to ensure the best deal.
Do your homework. There are a number of websites to research the dependability and safety of cars. Find out what similar cars are selling for in your area. Then, compare your potential purchase to its value on websites such as NADA.com.
Trade in your car. If you will be trading in your car, know the payoff amount and ensure the new car dealer will pay off your loan in full. Research the value of your trade-in to know what you should expect before going into the dealership.
Think through term limits. An important, and often overlooked factor in auto financing, is the loan term. The loan term is the number of months your new car will be financed. Many dealerships will finance a car for seven or even eight years. This may look good on paper but you must think long term. Before you sign, ask yourself, “will I own this car for seven or eight years?” and “will the car’s value still match my loan payoff?”
People forget to ask these questions before they purchase and some end up upside down in their car. This means their loan payoff is more than the car is worth and they have negative equity.
While financing a longer term may allow you to buy a more expensive car at a lower monthly payment, you will also pay more interest on long-term loans. Always compare the potential outcome and consider what is best for your future car buying experiences.
You are the customer. You decide where to finance your car, not the dealership. While dealerships may have a competitive rate or loan term, ask yourself some questions. Does the dealership have my best interest in mind? If I have problems with my loan, who will I call for help? Does a large out of state bank know me better than my local community bank? You hold the cards when it comes to where you finance your vehicle, so do what feels comfortable to you.
For more Financially Fit articles, go to RCBbank.com/FinanciallyFit. *Opinions expressed above are the personal opinions of Todd Ward and meant for generic illustration purposes only.
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