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August 28, 2013

Financing your First Car

Car financingIt will happen at a stoplight on your way to your first real job. The Plymouth Acclaim that you earned merely because you were the 16-year-old child of middle class suburbanites will not go, no matter how hard you hit the gas. The serpentine belt will blow, again, and it will seem silly to put more money into a car that is old enough to drink.

Still, what car seems affordable on an entry-level salary? Even the most economical of economy cars is likely too expensive to be paid for out-of-pocket. More often than not, securing an auto loan is a necessary step in purchasing your first car, and there are a few things that are helpful to know before you trust the offer made by your dealer.

New or Used?

Even before thinking about a loan, it is wise to decide whether you will purchase a new or used car, and from who? There are many pros and cons to both used and new cars, so it’s best to keep your budget in mind as you make your decision. Used cars, whether purchased as a “pre-owned” vehicle from a dealership or from your neighbor on Craigslist, will more often than not be significantly cheaper than a new version, and may not even be that, well, used. Notoriously, the value of a car depreciates as soon as it drives off the lot. If you buy a used car, make sure you have access to its entire history. Know who owned it before you. Know what accidents it has been involved in. That way, if you’re on the brink of having a used car horror story, you have the information to navigate your new-to-you car in another direction. On that note, never sign an As-Is statement. You are entitled to 30 days to find out whether the car is in working order.

As for new cars, they can be more expensive. And if few people are already driving that year or model, you can’t be absolutely sure that you haven’t landed yourself a lemon. Research is just as important with new cars as it is with used ones—you want to know the MSRP (Manufacturer Suggested Retail Price) and what deals other dealerships are offering on your chosen model. The Internet is a great place to research car prices, warranties, and safety features. Finance options for your new or used car can also be found online.

The Loan

Before you apply for a loan, it is wise to know your credit score first. There are many places that will give you access to your credit score for free online, such as Credit Karma. This will help you know what kind of interest rate for which you are eligible. Generally, the higher your credit score, the lower your rate. As you are young, it’s likely that your credit score will be low due to your brief credit history.

“The newer the car, the lower the rate” is also a piece of car finance advice that has been bandied about since the beginning of auto loans. While this may seem like a tick in the “pro” column for new vehicles, remember that the cost of the vehicle itself will likely be more than enough to make the savings in interest a moot point.

There are many ways for you to finance your car, and it’s smart to both diversify your application process and go to the dealer with a pre-approval already in place. Apply for loans at banks and credit unions, online financial institutions, and even the dealership (though these loans usually aren’t as competitive). Be honest on your applications, and take your time when considering all of your offers. Know the total cost of the loan. Pay attention to the loan term—a shorter term will involve higher monthly payments, but less interest. Don’t go for an offer that comes equipped with a laundry list of fees—you can be certain you won’t make up for the difference in savings on interest. No matter the case, do the math. Which offer works best with your current income? Which offer will allow you to save the most money in the long run?

If you go to the dealership pre-approved for a loan with a nice low rate, you will have the upper hand in negotiating what could be an even lower rate with you dealership.Be wary of the dealer offering you a lower price on the car with a higher interest rate. Remember, do the math. Rely on your own research. If you display clear confidence in your knowledge, it is less likely that the dealer financial manager will try to pull the wool over your eyes.

Driving Away in Your New…

While attempting to seduce you into their loan, the car dealership may offer you a number of “services” that also may not be in your best interest. Any “extended warranty” is more than likely not worth the extra cost—most warranties are extensive enough to cover any damages, and at the point the extension kicks in you will have spent more than you would out-of-pocket for repairs. Many dealerships offer expensive security systems that you could easily install yourself for less. Be careful about deciding to purchase life or disability insurance from your dealership. Like with loans, you may be better off getting a better deal elsewhere, if you need these types of insurance at all.

Of course, remember to have fun as you shop, and to buy a car that you can see yourself driving. A car may ultimately be a practical tool for transportation, but the right car can also provide a pleasurable experience.

Levi Hyatt is a part time blogger and a full time wannabe stunt driver. He’s carried his passion for cars over to writing about car financing. When he’s not going full throttle, Levi enjoys playing guitar for his cats George, Ringo and Paul.

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April 9, 2012

How To Get A Better Car Loan Deal

Most people come to a certain point when they have to borrow money to buy something expensive. This could be a house, home improvements, school fees or a car. Times are economically difficult at the moment so getting a loan isn’t always as easy as it once was. If you have a reasonable credit history though, there are car loans available. Here are some ways that you can make sure you get the best car loan possible.

Know your credit history

First of all make sure you know your credit score, this will put you in a much better negotiating position. Money lenders are far more likely to lend you money if you have shown that you can be trusted to repay the money you have borrowed. That isn’t to say that you can’t be trusted if you have a less than perfect credit history, many people have lost their jobs over the last few years and have found themselves unable to repay their credit. Unfortunately the banks will still penalise those people with higher interest rates and less car loan choice. Check the APR on any car finance you are considering and make sure that you work out the difference between the flat rate and the APR as the difference can be considerable. Even if you have a low credit score, there are many ways that you can improve it over time so don’t get too disheartened. There will also still be loans available to you but they will have much higher interest rates. To avoid a footprint on your credit history if you think you will be turned down, try to get car loan quotes over the phone.

Get a higher acceptance rate

Another way of getting a good car loan deal is to apply for PPI, or payment protection insurance. This doesn’t mean that you have to take it out, in fact it isn’t recommended at all. But, just for applying for a loan with PPI means that you are more than likely going to be accepted. When you have your quote and you have been offered your loan then you can say you have just changed your mind and cancel the payment protection insurance and get the car loan company to give you a new quote. You will normally have fourteen days to do this. Doing it this way will usually mean that you get the lower interest rate too.

The best way to make sure you get a good deal on your car loan is to shop around. If you get a good quote, make sure you read the small print to ensure it is as good as it appears.

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