Financing a new car is a major purchase for most people. The average car might cost between $10,000 and $30,000, depending on the make and model. You want the best deal for your dollar. Before you step up to the sales desk, take a close look at how you can finance a vehicle with a fair cost. There are realities in the dealership world that must be evaluated beforehand.
Focus on the Car’s Total Cost:
Car salespeople enjoy the power of numbers. They’ll quote you a low, monthly payment to draw you in. This practice is widespread and smart on the part of the dealership. However, you need to focus on the car’s total cost. The low, monthly payment may equate to a huge price on the car with some multiplication involved.
Negotiate the vehicle’s cost or “out the door” price. From this number, you can consider a finance package that suits your budget. The total cost tells you exactly what you’re receiving, from the sports trim to the Bluetooth radio.
Keep the Term Short:
Financing a vehicle over six or seven years allows you to spread the payments out over a long, time period. It sounds attractive because you can buy more with a low payment. Don’t fall prey to this scenario, however.
Finance the vehicle for the shortest time possible. Three to five years is the normal range for the average buyer. This time frame works well because the car’s value should be at its midpoint by the time you pay it off. You don’t want a car that’s worth only a few thousand dollars, and you’re still paying a monthly payment for outright ownership.
Try Weekly Payments:
Every car loan is structured with a monthly payment. However, you don’t have to follow this plan as a strict rule. To reduce your payment period and possible interest costs, pay down the car loan in weekly installments. Go online, and pay part of the monthly charge. Pay more if possible.
Although car loans don’t typically have compounding interest, you get ahead of the payments with a weekly habit. Make sure you always cover the minimum required by the monthly due date, however. You don’t want to add penalties to the loan by overlooking the due date on a weekly schedule.
The car dealership isn’t the only place where you can secure a car loan. Get pre-approved by your bank or another lender. They essentially guarantee a loan amount that’s funded once you find a vehicle. There’s a fixed, interest rate that can be negotiated at the dealership too. With good credit, finding a solid deal is possible with a bank backing your final loan.
You may feel obligated to agree to a finance agreement at the first dealership, but step back for a moment. There’s no obligation to buy anything until you sign the contractual papers. Feel free to leave if you experience too much pressure or the deal swings in the wrong direction. There are plenty of other dealerships to work with in today’s competitive market.
Yorkville Advisors, LLC is a privately owned hedge fund sponsor.