5 Tips for Financing Your Car in 2021
It is a fact that many people across the world buy vehicles through loans. Whether you are leasing or financing, there are always lenders willing to give you money to buy your car of choice. Unfortunately, not many people take their time to understand the overall cost of the vehicle they are buying.
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For example, many people make the mistake of purchasing cars without including the cost of auto financing in the total price of the car.
The difference between the sticker price and the price on the dealer’s invoices is often significant. Understanding this difference can give you an opportunity to negotiate and save a good amount of money.
Here are 5 tips for financing your car in 2021:
- Understand your credit score
Your credit score plays a very important role when it comes to getting a car loan. Most lenders use credit scores to determine whether to issue a loan or not. If you have a poor credit score, then the chances of your loan application getting approved are lower compared to someone with a good credit score.
However, there are financial institutions that don’t mind whether your credit score is good or bad. They will lend you money but with higher interest rates compared to borrowers who have a good credit history. Your loan interest rate will be higher because you are considered a high-risk borrower.
It will therefore be important to understand your credit score before you start looking for lenders. There are also car dealerships that work together with different lenders to offer loans.
- Shop for the best lenders
When it comes to auto loans, you ought to look for lenders that offer the best interest rates in the market. Different lenders have different lending rates. It is up to you to look for financial institutions that are affordable.
The best way to do this is to get a list of various lenders and compare lending rates by contacting each one of them. You can also talk to your car dealers to recommend dealerships that accept people with bad credit.
- Go for short term loans
Short term loans are advantageous because they come with lower interest rates. You will, however, need to consider your financial ability because the monthly installments are high. Long term loans have reduced monthly payments but with higher interest rates.
When you visit a car dealership and ask for financing, you will find salespeople who will try to negotiate based on your ability to repay monthly installments. Their aim is to convince them to agree on a longer period to repay the loan than a short one. This is because when the repayment period is long, they benefit more.
- Make a substantial down payment
Although most dealerships require a certain amount of down payment, some will not mind giving you the car without depositing anything. However, driving away without paying a single cent is riskier. You might find yourself in a situation where you have to sell the car to repay the loan.
The best thing to do is to pay at least 20 percent of the total price of the car. This will make it easy for you to clear the balance with the auto loan.
- Pay fees, taxes, and any other charges using cash
Try as much as possible not to use the car loan for miscellaneous expenses such as registration fee, documentation fee, sales tax, and any extras like warranties.
Some dealers will be more than happy to lump up all these expenses into your car financing plan. This will only end up increasing the amount of the auto loan.