Before you apply for a new car loan, do your homework. New car financing is a crucial part of the auto buying process. Plan ahead before you apply for a new car loan by:
- Checking your credit – your credit use and history has a direct bearing on the new car loan rates available to you. There are three agencies, TransUnion, Experian and Equifax that collect information about your use of credit. You are entitled to one free report annually from each agency. Ideally, you should request copies several months in advance of seeking new car financing so that you will have time to address inaccurate information, if necessary.
- You can also check your credit score for a nominal fee. When considering new auto loan applications, lenders assume that borrowers with higher scores carry a lower risk of default. These borrowers enjoy the most favorable rates and terms for their new car financing. If you don’t have a high enough score to get a decent rate you can save several thousand dollars on your new auto loan by waiting until your score improves. You can help the process along by correcting mistakes on your credit report, making timely payments on current debts, avoiding new debt and paying down current debt.
- Reviewing your budget – know how much car you can afford before you even start considering models. Bankrate.com advises borrowers to limit transportation expenses to 15 or 20 percent of their net income. Planning ahead just may keep you from throwing caution to the wind because (hopefully) you won’t even consider cars outside of your budget.
- Calculating the total anticipated cost of owning the car – be sure to include maintenance, repairs, insurance expenses (new cars often require full coverage), registration (new cars are often more expensive to register) and gas. Edmunds.com offers a free calculator to help you estimate these expenses.
When comparing new car loan rates, determine the total cost of the loan to get the best deal. Your monthly payment amount is important, but it should not be considered alone when applying for a new auto loan. Borrowers should also consider the cost of the car as well as any associated new car interest rates and fees.
New car financing is sometimes a better deal than used car financing. New car loan rates are generally lower than used car rates. Also, the loan terms are longer. When you factor in the down payment, warranty, repair and maintenance expense a new auto loan may cost less in the long run. Estimate total costs to decide which is best for your budget.
Consider non-dealer financing for your new car auto loan. New car financing is available from many lenders including banks, credit unions and Internet based financial institutions. A little research may yield a great deal. An added benefit – when you arrange outside financing you boost your negotiating power with the dealer because you are a cash buyer. Non-dealer financing can also alleviate some of the pressure that comes with new car purchases.
Before you sign on the dotted line, consider these final new car financing tips:
- Ask how much the car, and financing the car, will cost.
- Know the APR or Annual Percentage Rate before you agree to any new car loan. This is the rate of interest you can expect to pay annually on any outstanding loan balances.
- Read every document carefully to avoid unpleasant surprises such as pre-payment penalties.
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