Car Buying Smarts: Focusing on Payments Over Price Could Be Costly

by James Hendrickson on May 4, 2017 · 0 comments

car buying smartsLooking for the most exciting car features, reading reviews and talking to people about cars is fun. Looking for auto finance offers, reading finance reviews and talking to people about finance, on the other hand, are activities rarely engaged in. Obscure financial minutiae tend to bore most people. Many car buyers, then, head into dealerships and only think about the subject of borrowing money when salespersons bring it up.

It’s important to closely study how you borrow money, however. You could easily lose $3,000 on the average car loan deal, simply by not doing your homework. If you’re not eager to lose this kind of money, here are the mistakes to avoid.

Only buy as much car as you should

Car dealerships often quote car prices in terms of the monthly payments required rather than the final price. It’s a tactic aimed at encouraging car buyers to seriously consider themselves in bigger cars than they can really afford.

To make sure that you don’t end up buying a car that’s far more expensive that you can really afford, you want to do your math and look at all the numbers involved. You should pay attention to the final price that you get when you add up all those installments.

Don’t forget to research your loan like you research cars

If you like to flip through car magazines, you should also like to look at auto finance websites. When you learn enough about car financing to get better deals, you actually get to apply your money on a better car instead of unnecessary interest payments. Get on a good loan comparison engine to compare offers and rates, look up banks and credit unions, and apply to each one. Once you have loan offers, you can carry them to the dealership, and see if they will beat them.

Don’t borrow more than you have to

Wherever your loan may come from, you don’t want to borrow any more than you absolutely have to. Saving up for at least a 20% down payment helps, but you should aim for more if you can possibly manage it. The less you borrow, the better the loan offers are that you get, and the less the interest is that you pay. If you plan to get rid of your old car, you should instead sell it to a used car lot. You’ll get a better price than with a trade-in, and you can add the money to what you have saved for your down payment.

It’s important to keep another detail in mind — as inadvisable as dealership extras are, if you do want to get some, you don’t want to borrow for them. When the dealership offers upgraded security, paint protection, insurance and other expensive items, you need to see that these are usually worthless or overpriced. If you want these products, you want to get them from outside. If you buy right at the dealership, however, you should make sure to ask to pay cash. If you don’t, they’ll add it to the price of the car so that it ends up being part of the sum you borrow. You don’t want to pay interest for the privilege of buying these items.

Don’t go in without attempting some credit repair first

Your credit score plays an important role in the kind of loan offers you qualify for. If your score is under 700, ideally, you should attempt to improve it to something over 750, first, before you apply. You come by dramatically cheaper interest rates this way. It isn’t hard. You only need to wait a year, make sure that you pay every bill on time, and keep your credit card usage to a level no higher than 15% of the limit that you are allowed.

Finally, consider not borrowing at all

Each time you finance a $30,000 car for four years, you end up paying $4,000 or so in interest. While $1,000 a year may seem affordable, you need to think in terms of opportunity costs. If you parked the $1,000 in a mutual fund for 20 years, you would have about $35,000. It isn’t a small sum of money.

You should really do it — save to buy the car that you need cash down, then take the money that you would have paid as interest, and invest it.

Photo: Generation X Finance

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