Want to get the best new car price? Shop for the loan, then the ride
It’s fun to buy a car when you’re taking a test drive, smelling the new car smell, maybe even skimming multitudes of car websites dreaming about your ideal ride. It’s nowhere near as entertaining to attempt to get the best price for a car. But the legwork is necessary and you can make it faster using one surefire trick for saving money. Before you get to the fun parts, shop for your car loan. To excel at the process, follow these tips:
Set your car budget first
We all know people who make a hobby of “shopping” for cars. Unless you’re also the type to browse showrooms and demand test drives when you know you’re not going to make a purchase, focus on how much you can spend on buying this car. If you are looking to save money, don’t just compute how much someone will lend you and then buy a car based on that number. Your estimations should extend all the way to the final price tag you can afford, along with how much extra it will cost in interest to extend your loan to the maximum number of months.
You can save hundreds or even thousands if you can pay more each month and have a shorter loan term. Computing the total cost using a calculator like the one online at Nerd Wallet gives you a real sense of both your buying power and where you can save money. “You’re comparing apples to apples while you shop around, and you’re not letting a dealer ‘pack’ your loan with unnecessary features that might fit your monthly budget, but could have you paying more in other ways, say with a longer loan term,” explained free credit score company Credit Karma. You can spot these “extras” on the contract later, but it’s so much more cost-effective to avoid them by securing pre-approved credit before you start car shopping.
Check your credit
Your car loan amount and interest rate depend heavily on your credit rating, so see what’s up with your score before you start applying for loans. This will give you a chance to correct any errors on your report that are sinking your scores, too. In general, the worse your credit, the higher the interest. Your credit rating is so important you may even decide to postpone trying to get a car loan while you’ take steps to bump up your credit rating. Lowering your interest rate by just a percentage point or two can reduce your total car payment substantially over the course of repaying a 60-month loan for the average price car, which was $33,695 in April 2019. Use a credit score simulator like the one on CreditKarma.com to see which strategies would raise your credit rating most quickly.
Ferret out the best loans
When you begin seeking car loans, the dealership itself is just one of many options. Even with trade-ins and rebates, you may find another lender can save you money in the long run. Same with 0% financing offers: The dealership may offer them, but there’s no telling when. Waiting around for a deal that may never happen isn’t as cost-productive as finding a solid loan opportunity on your timetable. If you’re a credit union member or qualify to join one, look there first. They tend to have the lowest rates and the most friendly service since they’re essentially member-owned.
Banks and online lenders may also save you money. Consider all the factors that can cost you with a car loan, though, including a higher down payment, sales tax, and any other fees. Experts recommend paying no more than 10% of your after-tax paycheck for the loan, and 20% total for everything car-related. That would include gas, tune-ups, the remote starter you buy later and even a new paint job. Once you’ve used your car buying experience to get in the habit of scoring the best deals, though, buying the extras at the best price should be a snap.