Smart Tips For Car Financing

Tips For New Car Financing

Experian’s quarterly State of the Automotive Finance Markets — it’s probably not on your reading list, but it does show some interesting trends if you’re looking for car financing. It’s true, other aspects of the vehicle buying experience may be flashier, but financing is certainly not something you want to relegate to the back seat.  Poring over the fine print is not nearly as satisfying as shifting the gears of a new ride, but the right preparation can make a huge financial difference. Here are five tips to help you stay on track as you consider financing your next vehicle:

Skip Financing Altogether

This may not be possible for most people, but it should still be an aspiration. According to Experian, buyers financed 86% of new vehicles and 55% of used vehicles sold last year. Remember, though, a large down payment can give you instant equity, shorten the term of your loan and save big money on interest. Unless you need to buy a vehicle right away, consider waiting until you have more cash to put down.

Do Your Homework

Before applying for a car loan, check your credit report and score. You don’t want to learn you’ve got credit issues by being rejected for auto financing. It pays to review your credit report for accuracy months before the purchase. According to Experian, “super prime” borrowers (who get the best deals) have credit scores of 781-850.

Get Your Loan First

The majority of borrowers finance cars through the dealer. But if you are approved for a loan from your bank or credit union, you may have more flexibility — in getting the best rate, negotiating the purchase price or being able to accept cash back in lieu of dealer financing. That’s why you should shop around for financing before visiting the dealership. Catch the right lender at the right time and you may get a better deal.

Keep It Short

Experian reports that loan terms are on the rise. The average new car loan has increased to 67 months, and used car loans have stretched to 63 months. The percentage of new car loans with terms between 73 and 84 months climbed to 29% over the past year. Aim for a loan of five years or less (only 28% of borrowers hit this mark) and don’t play the “how big a payment can you afford per month?” game. Heck, even I can afford the monthly payment on a Lamborghini if you give me a 25-year loan … well, maybe. The key is to get the best price and to pay off the loan as quickly as possible.

Get The Extras Elsewhere

Or perhaps take a pass on them altogether. Usually a trip to the dealership finishes with a hard sell on everything from protection packages to extended warranties. If you truly need what they’re selling, you can probably buy it for less from a third-party. For example, USAA actually sells extended warranties for vehicles.

Hunting for a new ride can be an exciting experience. Make you’re ready by thinking about financing before you walk into the showroom.

About the Author

JJ Montanaro
Joseph “J.J.” Mon­ta­naro is a CERTIFIED FINANCIAL PLANNER™ prac­ti­tioner at USAA with more than 19 years of expe­ri­ence in the finan­cial ser­vices indus­try. JJ also served in the U.S. Army for six years on active duty, and in 2009, he retired as a lieu­tenant colonel in the U.S. Army Reserve.