Many people simply stumble into their auto loan. On a Saturday morning they decide to visit a local car dealership “just to look around.” By the time lunch rolls around they find they’ve purchased a new car and with it a new auto loan. As they dive into their salad, they might have a good sense of what their monthly payment will be, but the odds are they have no idea whether the car loan they got was a good one or not. Looking at this scenario, I think you’d put your bet on “or not.”
The fictitious but typical car buyer we describe above did a lot of things wrong, but let’s concentrate on the subject of this article — the car loan. Though a high percentage of buyers obtain financing through the dealership, that course of action might not be the most cost-effective. Instead, going directly to lenders themselves — banks, credit unions — can result in significant savings. Further, on-line loan portals like LendingTree.com, BankRate.com and RoadLoans enable you to compare loan offers from the comfort of your easy chair.
Don’t stumble into your car loan
We’re not suggesting you embark on something as complicated as brain surgery or preparing a superior risotto alla sbirraglia. All we’re suggesting is you shop around. Don’t stumble into your loan. Instead actively seek out a great loan before you go car shopping.
In fact, we also suggest taking it a step beyond just looking at loan rates online to get an idea what interest rates and monthly payments you will be looking at when you buy a car. The wise buyer will “pre-qualify” for a loan. By that we mean she or he will go through the fairly simple steps required to get an auto loan, so when they enter the dealership they are certain they will get a loan at already established terms they are comfortable with.
After you have pre-qualified for your potential loan, you should then allow the dealer to meet or beat that financing deal. Sometimes, often through the miracle of car manufacturer-subsidized financing, dealers are able to do that. If they can’t match it, you know you’re in good shape financially by going with your pre-qualified loan.
The simple act of shopping for a loan enables you to lower your monthly payments and lower the amount you pay for your new vehicle overall. If you are borrowing $25,000 to finance your next car a difference between an interest rate of 4.0% and 5.0% will give you a monthly payment of $460 versus $472 and save you nearly $700 over the course of a five-year loan. By spending an hour of shopping time to save that money, you’re making $700/hour. Not bad at all, is it?
by Eric C. Nerad for Driving Today