By Oliver Jones
Whether it’s your first time buying a car or your fifth, it pays to know how to get the most out of your financing. After all, even the most experienced buyers can lose their head a little when they walk into the showroom. “I strongly believe that when they are buying a car, many people panic,” said Mitch Solomon, host of the car and pop culture podcast Doing Donuts. "They end up making stupid penny-wise, pound-foolish choices.”
Here are seven commonsense ways to avoid such a fate.
Do the prep work. The best way to ensure the most favorable financing is to hit the web. “It’s important to educate yourself before you go into the dealership and negotiate your own car deal,” said Oren Weintraub, head of Authority Auto, a Los Angeles-based car buying consulting agency. “Good sources for finding aggressive rates tend to be local credit unions.”
And while you’re looking things up, make sure that everything is on the straight and narrow with your credit report. “Know your credit score, debts and monthly obligations before negotiating with a dealer,” said Scotty Reiss, founder of SheBuysCars. “The interest rate you qualify for results from you credit score, which can be brought up by paying down debt, opening or closing credit accounts and ensuring that there are no errors on your report."
Talk to the manufacturer. If carmakers are offering eye-popping terms to get you in the driver’s seat, take them seriously. "If you qualify, the incredibly good terms offered by the carmaker itself are often for real,” said Eric Noble of Car Lab, an automotive consulting firm. “These are their curious ways of keeping their factories running full tilt, even if it costs them thousands per vehicle.”
If you do go that route, and they offer you either a rebate or, say, zero financing, break out the calculator before making the call. “Depending on the consumer, it may behoove them to take the rebate over the financing,” said Weintraub. “It’s important to do the math. When you look at real numbers, a cash rebate on a loan over $20,000 can really end up saving you a significant amount of money down the road.”
Consciously uncouple the negotiations. If you do end up getting your loan at the dealership, don’t confuse the process by doing two things at once. "Negotiate the car price and the loan separately,“ said Reiss. "If one is tied to the other, the dealer will have leverage over you.”
Don’t be seduced by low monthly payments. Saving $50 a month on your payment may seem attractive in the showroom, but if it means extending the length of your loan, steer clear. “Lower payments can be attractive, but may hide a higher purchase price and steeper, longer terms,” said Noble. “Interest stacks up.” He advises to check prepayment terms to ensure that early payments go to principal, not interest.
As a rule of thumb, avoid loans longer than 60 months. "If you’re putting a little money down and you take a loan longer than that, the car most likely will depreciate faster than you’re paying it off,” said Weintraub. “You are putting yourself in a position of creating a cycle of negative equity.”
Avoid “packages” you never open. A crucial way to save money on your auto loan, and one you are quickest to forget on the sales floor, is to not inflate the price by buying what you think you need but will never actually use. “Skip the nav system,” said Noble. “They’re usually part of costly ‘packages’ and almost all drivers these days use phone-based apps anyhow.”
Don’t forget your back-up. Consider bringing someone with you who can be a second pair of eyes or who might ask you some tough questions.
“Don’t go it alone if you don’t have to,” said Reiss. “Ask a financial planner or a friend or family member with experience in reading contracts to look over your purchase and loan agreement before you sign. This may take an extra day or two but it’s worth it, especially if it avoids a potentially costly mistake. For instance, if you’re trading in a car that has two payments left on it, pay them yourself rather than letting the dealer do it and roll those payments into your loan.”