The time has come. That old junker you’ve been driving needs new brakes, new tires, new everything. Deep down, you know it’s time to just put it out of its misery and buy a new car. Or maybe your family is growing and there’s just no place to put the kids (let alone all the stuff you need to drag along for them) in your subcompact.
You’ve been working hard, saving money, but with today’s car prices you know you’re still going to need an auto loan. Where should you start?
While the loan process may seem daunting, it’s easier than you think. Here are four steps to consider:
Check Your Credit Score
Your credit score will play a key role in the rate you’ll pay for a loan. The better your credit, the cheaper it is to borrow money. A high credit score can mean a lower car loan rate, which saves you money on interest.
Since your credit score is based on information in your credit report, make sure your score is accurate. Dispute any errors, such as incorrect balances or late payments. And if you can, pay off credit card balances or smaller loans to give your credit score a boost.
Pick Your Payment
How much can you realistically afford each month on a car payment without straining your budget? While you may be able to cover a $400/month loan, it won’t make sense if it is cutting too far into your monthly savings goals or other needs.
Also remember, a new car may mean an increase in your car insurance rate which won’t be included in your monthly payment. If you have trouble paying that rate, as well as things like normal maintenance, you may find it hard to keep up with your car payment. Your insurance agent can help you to estimate the cost for insuring the car you are considering buying.
Also note that car loans typically come in 3-, 4-, 5- and 6-year terms. The longer the loan term, the lower the monthly payment. But a long car loan may also mean you owe more than the car is actually worth.
Before you head to the showroom, consider getting pre-approved for a car loan. If you qualify, you’ll get a “pre-approval” that will be good for a certain period of time and up to a certain amount of money. Once pre-approved, the lender will let you know what interest rate you qualify for so you’ll know what you have to work with before
you walk into the dealership.
You can always spend less than the amount for which you are pre-approved. If you spend more, though, you’ll need to make up the difference in cash or by trading in your current vehicle. And if you don’t have great credit, you may still be able to get pre-approved, but your interest rate may be higher.
Once you’re pre-approved, you can start looking for that new ride. One of the benefits of being pre-approved is that you can focus on negotiating the best deal for the car or truck you want, rather than worrying about financing.
Make sure to do your research. Make sure the vehicle you like is also reliable and will fit your budget. Consider its size, gas mileage and extra features. Investigate how much it is really worth by checking sites like Kelley Blue Book or Edmunds. And don’t forget to check on dealer incentives and rebates to get the best price possible.
Once you’ve chosen your vehicle and negotiated the price, the dealership’s financing department will coordinate with your lender to finalize the sale. They will also try to get you to buy add-ons like an extended warranty, paint and fabric protection, etc. Be sure to research these ahead of time so you don’t feel pressured into making an uninformed decision.
How Should I Get Started?
Obviously, there’s a lot to consider when buying a new vehicle. If you’re in the market and want to know more about making the right financial choices, start by talking to the auto loan experts at Point Breeze Credit Union. They’ll be happy to answer your questions and help you decide what options will be best for you.
Right now is the perfect time to get an auto loan from Point Breeze with exceptionally low rates. Pre-approval is fast and easy. Apply online in just minutes. Click here to get started.