After weeks of searching, you finally find a reliable used car that suits your needs. Even better, you’ve negotiated a great deal with the seller. Now, it’s time to figure out how to pay for it.
Depending on the year and mileage of the car you select, you may have to jump over a few hurdles to obtain financing. But don’t fret! Read on for a few tips that will get you moving in the right direction.
1. Understand the Lingo
Loan documents are full of jargon that many consumers have heard of but don’t quite understand, such as the rule of 78, rebates, or the dealer sticker price. In some instances, a lack of knowledge can cost consumers tons of money. For instance, an auto loan with a prepayment penalty will charge you additional fees if you try to pay the balance early.
2. Shop Around
If you find the used car of your dreams in a dealership, they’ll be happy to arrange a loan for you. However, there is no guarantee the interest rate will be the most competitive on the market. Here’s a better option. Use our auto loan finder tool to explore lenders who offer used car financing.
Next, contact the lender(s) to get financing quotes for the car you’re interested in. Are you worried about the effect several credit inquiries will have on your credit score? Don’t be. Credit score algorithms consider several inquiries as one if they are within the same 30-day “rate shopping” window. (See – How to get approved for a car loan)
3. Run the numbers
Use an auto loan calculator to confirm the accuracy of the lender’s quotes. If you spot inaccuracies, reach out for an explanation. It may be the result of an error or hidden dealer fee that wasn’t disclosed beforehand.
After doing the calculations, you may need to look at cheaper options to stay under budget. To illustrate:
|Loan Amount||Loan Term||Interest Rate||Monthly Payment|
As evidenced by the table, an increase of $5,000 significantly impacts the monthly payment.
4. Select a Loan
Now, it’s time to finalize the terms of the loan. If you’re making a down payment, now’s the time to fork over the funds.
Keep in mind that cheaper payments equate to extended loan terms, which will cost you more in interest over the life of the loan. To illustrate:
|Loan Amount||Loan Term||Interest Rate||Monthly Payment||Total Interest Paid|
5. Sign on the Dotted Line
You should also know that some lenders charge higher interest rates for longer repayment periods.
Review the finalized financing contract in its entirety and seek clarity on any components you don’t quite understand. Once you sign on the dotted line, the deal is sealed, and there’s no more time to negotiate.
A Word of Caution
The seller may request a down payment to hold the car until you secure financing. But what happens if the seller closes a deal with another buyer and refuses to refund your money? You’re out of luck because that so-called down payment was simply a non-refundable deposit.
If the seller is a private dealership or broker and insists on a deposit, get the agreement in writing.
Most importantly, don’t be in a hurry to make a purchase decision. Instead, shop around and check out SuperMoney’s auto lenders to ensure you are getting the most bang for your buck.
Allison Martin is an accomplished finance writer who has written for publications including The Wall Street Journal, MoneyTalksNews, The Simple Dollar, and Credit.com. Her work has been featured on Fox Business, Yahoo! Finance, MSN Money, and ABC News. She enjoys writing about personal development, entrepreneurship, personal finance and is a Certified Financial Education Instructor (CFEI).