In need of a new ride? You’re not alone. April marks the start of car buying season, but before you buy, make sure you know how you’re planning on responsibly paying for your new car. One of the most surprising ways that people forget to save money on a new car purchase is the loan itself. Haggling the price down is great, but if you get a bad deal on your auto loan, you’re still going to end up paying too much. Here’s how to save on your next car loan.
Shop for the Loan Before You Shop for the Car
The car loan is arguably a more important purchase than the car itself. Shop around before you sign paperwork. Start with your bank, but look around at the rates on offer at competitors, including credit unions. Apply for pre-approval and bring the pre-approval notice with you when you go to buy; It will provide you with bargaining leverage when you negotiate the price of the car.
Read the Terms Carefully
Once you’ve got a couple lenders in mind, you need to go over the terms with a fine-tooth comb. The amount financed, the loan’s term and the interest rate all add up to one bottom line. You wouldn’t be the first person seduced into paying thousands more for a car because of low monthly payments. Rather than concentrating on monthly payments, look at the total cost of the loan over time.
Weigh a Cash Rebate Against a Zero-Interest Loan
To most people, a zero-interest loan automatically trumps a cash rebate. However, in some cases, the cash rebate might be the better deal. Let’s say that you’re looking at a car costing $20,000. You have the choice between a zero-interest loan and a $2,500 rebate. Which do you take?
The rebate. Your payment on the zero-interest loan will be $555 monthly. With the rebate on a 5 percent auto loan, your monthly payment is $524. You’ll save over $1,000 over the life of the loan.
Avoid the Dealership’s Loans? Not Always
It’s a myth that the dealers always have the worst loans. You will, however, get a bad deal if you allow them to decide your creditworthiness. Before purchasing the car, show them the best pre-approval that you have on offer. Give them an opportunity to go one better. You might get a better deal and you might get nothing. Whatever you do, however, don’t go to the dealership without shopping around. After all, you wouldn’t buy a car that way.
When it comes to add-ons, you should be wary of purchasing them in the first place. Under no circumstances should you finance them. Fabric protection, paint sealant and extended warranties aren’t there to protect your investment. They’re there to increase the cost of the car and grow the dealership’s margins. If you decide you want an add on — and again, let the buyer beware — pay for them out of pocket.
Look Into Leasing
Before making a purchase, consider the leasing option. If you don’t want to deal with caring for an aging car and can accept that you won’t have anything to resell at the end of the lease, go for it. Often times, you can pay hundreds less on a leased car than a used car. For the person who gets a new car every three to five years, leasing is the clearly superior option.