If youâ€™re like most Americans, you donâ€™t have $36,270 (the average new car price) saved up and burning a hole in your pocket. However much or little you have saved toward the purchase price, youâ€™ll need to finance the rest.
Once you reach a deal, itâ€™s time to talk financing. Knowing what to ask will determine how much or how little will be added to that purchase price.
Where Will You Get Your Financing: Bank or Dealer?
There are pros and cons to either option, and lots of exceptions. You canâ€™t beat dealer financing for convenience. But sometimes a bank or credit union can beat a dealerâ€™s interest rate, especially if youâ€™re an existing customer. Check your bankâ€™s auto loan rates before you visit the dealer.
How Much Will You Put Down?
This is another question to ask yourself before you start car shopping. Dealers prey on the unprepared. Put down as much as possible, ideally 10 percent to 20 percent. It will save money you over time, no matter the rate or terms (number of monthly payments) of your loan.
What Is the Dealerâ€™s Price?
The price on the sticker isnâ€™t always the price you end up paying. Most dealers have a healthy profit margin built into that MSRP (manufacturerâ€™s suggested retail price). Research and find the â€œinvoice priceâ€ from resources like the Kelley Blue Book, Edmunds, NADA Guides or TrueCar. Find the vehicleâ€™s identification number (VIN#) when youâ€™re browsing the dealerâ€™s websiteâ€”again, before you visit in person. This will help you negotiate the best price final price, and the amount youâ€™ll have to finance. Once that price is negotiated, get it in writing before you sign anything or even talk financing.
What Is the Dealerâ€™s Best Financing Rate?
Unlike a bank, auto dealers can negotiate interest rates, usually based on how many years you want to finance, how much youâ€™re putting down, whether you have a trade-in, manufacturer rebates, your credit score and the agreed-upon purchase price. Sometimes it even comes down to the model of vehicle. Yes, some dealers can offer 0 percent financing on certain new vehicle models if you have good enough credit. Hard as it may be in the moment, get a written quote and shop it against other dealers for the same make and model. The extra time and effort could mean thousands of dollars in your pocket.
Should You Get an Extended Warranty?
Most buyers donâ€™t fall for the classic â€œundercarriage rust protectionâ€ gag. It has beenÂ replaced by the extended powertrain warranty pitched by most dealers, especially for usedÂ cars. This can extend the coverage above and beyond the manufacturerâ€™s standard warranty,Â which is typically stated in years or miles. Check your make and modelâ€™s performance andÂ quality history. If it is prone to engine, transmission or drivetrain issues, an extended warrantyÂ might make sense. If not, donâ€™t fall for the â€œif the computer chip fails, you could be looking atÂ $3,000 repairâ€ line.
Should You Buy Gap Insurance?
Be prepared to field this question right after the extended warranty discussion. Gap insurance covers the gap between what you owe on the car versus its value should you wreck the thing in the first few years. If you put down 20 percent, youâ€™ve most likely covered the depreciated value the moment you drive it off the dealer lot. However, if you put down less than that, or rolled in debt from a previous loan, sales tax and/or insurance into the financing, gap insurance may be worth the extra cost. A lot of variables come into play. Follow these helpful guidelines.
Should You Add Sales Tax, License and Tag Fees Into the Loan?
If at all possible, no. Remember, every dollar you add to the final amount financed, the higher your monthly payment will be. Donâ€™t forget to estimate these costs when determining how much you can come up with for a down payment.
Most of these questions are ones to answer before you set foot on the car lot. The fewer questions you have to ask the salesperson or finance manager, the fewer ways they have to manipulate the answersâ€”and the final transactionâ€”according to their best interests rather than yours.
And donâ€™t forget about insuring your new ride. Weâ€™re here to help when youâ€™re ready at www.selectquoteautoandhome.
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