We have to have a car to get by in our society and, for most of us, this means an auto loan. Getting a new car can be exciting and that unfortunately leads many people to make a lot of loan mistakes. They either allow themselves to be taken advantage of or they do not do the research and prep needed to get the best loan.
If you are about to take out a new auto loan, take a minute and learn what you need to do in order to get the best deal possible.
1) Get Your Credit In Order
The single biggest thing that you can do is get your credit in order. There are several things that you can do in just a few months that can get you some extra points on that credit rating and, believe me, every point counts.
First, you need to pull a copy of your credit report and check for errors. If you find an error, or anything that you do not believe is accurate, you will need to write the credit reporting agency and dispute it. They then have 30 days in order to investigate the matter. If they can not prove it, they must remove it.
Next, you should take a look at those credit card balances and try to pay them down as much as possible. Ideally, you want your card balances to be below 30 percent. This means that if you have 1000 dollars in credit, you should have a balance of no more than 300 dollars.
Use a credit monitoring service that has a simulator such as Credit Karma and see how much your score would increase if you paid down your balances. If you were planning on putting a down payment down, your money might be better spent on paying down your balances to get your score higher.
Finally, check out Experian Boost. You need to sign up for a free account with Experian but it may very well be worth your time. Experian Boost allows you to use your good bill payment history to increase your credit. You can add 20 points or more by showing that you pay your utilities on time every month.
2) Do Your Research
You should go into a vehicle search knowing which vehicle that you want. Do your research and choose one or maybe two different models that you would like.
Limiting your choices can allow you to thoroughly research the vehicles that you choose. You can know about features that you want, features to avoid and, most importantly, the current value of the vehicle. Get NADA values and also try to browse local classifieds as much as possible so that you know about the going rates.
One thing to also keep in mind is the historical resale value of a vehicle. This can have a big impact on the financing rate that you ultimately receive. Some vehicles just do not hold their value well. For a lender, that makes finanicng one of these vehicles much riskier. If you were to default, they would have a hard time getting their money back through repossession. Choose a vehicle that holds its value better like a Honda or Toyota and you will typically get a better rate.
3) Know Dealer Tricks
If you plan to shop at an auto dealership, there are several tricks that you need to know about. You know that you will need to haggle on the price of your vehicle, but there are a lot of other ways that a dealer makes a profit that you might not know about. Know them and you can save hundreds or even thousands of dollars.
The main thing that you need to know is that the dealer makes money on every part of the auto purchase process. They make money on the front end which is the purchase price but they also make money on the lesser known back end. Here are some examples.
Financing: If you finance through a dealership, they get a cut. They might present you with an offer for 8 percent financing when the bank really offered you 6 percent. The extra interest oes int heir pocket. Always ask for a lower rate than the dealer first offers you, never be afraid to send it back.
Warranties: Your dealer might be getting 50 percent or more of the warranty that they are offering you. If you want a warranty, you can negotiate the price down because they make huge profits off of them. Before committing to that warranty though, know what warranty that your vehicle already has. That dealer would be more than happy to sell you a warranty even if you still have a valid factory warranty.
Gap Insurance: Yep, they make money on this too. If you are going to be behind on the value of your vehicle, a gap policy is a good idea but know that it is negotiable.
In general, keep in mind that dealers make money on everything and everything should be negotiated.
FUN FACT: Your dealer may say that they can get you a lower rate if you get an extended warranty. This is very common and an easy way to negotiate a cheaper rate. If you do not want the warranty, you have 30 days from the time of purchase to cancel it for a full refund. The refund will be applied to your auto loan balance.