Preapproved Means Prepared: How to Land the Best New Car Deal

new car dealIt makes sense to take out a loan to buy a home because if you waited until you put the money together, you would grow old waiting. Cars, however, cost a tenth of what homes cost. When you finance a $30,000 car for four years, you easily add $4,000 to it before you own it outright. It's a lot of money to pay just because you want a car before you've had time to save for it.

If you have nothing much saved and need a car right now, you do, of course, have no choice other than to look to a lender. You should resolve, however, to begin to save so that you are able to buy your next car outright as if you were buying a television or a refrigerator.

For the car loan that you need right now, you want to make sure that you do everything in your power to get a reasonable deal. Learning how to avoid mistakes can save you hundreds, if not thousands.

This is what you need to keep in mind.

First, make sure that you don't buy too much

Car dealerships love financing the cars they sell. It allows them to advertise their cars on the lowest monthly payments possible, to make their higher-end cars appear far more affordable. You might balk at spending $50,000 on a car; $700 a month over seven years may not sound that bad, however. What you want to do is to use a loan calculator to work out repayments, add it all up, and look at what you're really paying. This $50,000 car actually ends up costing $58,800. That's the sum you should keep in mind.

There is an even better way to ensure that you don't get in over your head. All you need to do is to go with a reliable rule of thumb — your monthly payment should never go over 15% of your income. Staying under 10% would be even better.

Go in with your loan pre-approved

When you decide to finance a car, you are essentially shopping for two products — the car itself, and the financing. You do shop around looking for the best price for the car, but if you're like most people, you simply choose whatever financing deal the dealership offers.

It's a much better idea to split the deal into its constituent parts: the dealership sells you a car, and you shop elsewhere to find a good loan. Dedicated lenders are capable of offering far better rates than dealerships, and you should compare offers. If all goes well, the dealership may even offer you a financing plan that is an improvement on your pre-approved deal.

Before you even apply for pre-approval, however, you want to make sure that your credit score as high as it can be. It makes a lot of sense to work on your credit score, to get it as high as you can, and to then apply. Not only will you get much better terms, you will find that there are many more lenders willing to lend to you.

If you want extras, don't buy them at the dealership

Extras — paint protection, rust protection, improved security system or stereo, chrome wheels, extended warranty, disability insurance or life insurance — are all upsells dealers often try to push for hundreds of dollars more than they are actually worth. Some, like rust protection and security systems, are often actual downgrades to what you get from the factory. Often, dealerships don't even ask before they add these extras on. The quote actually includes these items. You need to make sure this isn't happening to you.

If you do see a dealer extra that is genuinely a good deal, it shouldn't be part of your new car purchase. This is because everything you opt for at the time that you get the car goes on the final bill, and then gets financed. You don't want to pay interest on these upgrades.

 

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