As you probably know, getting a good loan on a car can mean the difference between getting your next car at an affordable price or not getting it at all. Simply put, if the terms on your loan for a new ride are good then the monthly payment will be much lower and you’ll be willing to pay any reasonable interest charges. As with any type of vehicle purchase, the key is to find a vehicle that you are interested in and then negotiate the terms of the deal. A must-know piece of advice to follow is to negotiate the purchase price of the car as a whole instead of negotiating in terms of monthly payments. Duh. The reason behind this is that if the salesperson knows what you are willing to pay per month on a vehicle they can sell you the car at a discounted price but inflate the interest rate on the loan (or sucker you in on some extras on the car or extended warranty that are very high-margin for them). If you negotiate the total price of the car first, without mentioning monthly payments, they will ideally give you the price you want on the car but won’t have any room to play around with the interest rate, and the end result will be fair.
An option besides getting in-house dealer financing? Look into getting financing from a third party lender that is not associated with the dealership. If you search around online for auto loans you will be able to find plenty of creditors who are in the business of giving auto loans. Oftentimes you will be able to receive a rate as good as the dealership if not better. For example, if you get pre-approved for a $25,000 loan from the third party lender at 5% over 60-months you know that you have $25,000 to spend. The third party will send you a check for the requested amount in the mail. At this point you know that you have a loan for $25,000 in hand with terms that you are comfortable with. All that is left is to get to the dealership and negotiate your deal—FOR $25,000. Take it or leave it, Mr. dealer. You will be negotiating the deal as a cash transaction, however sometimes this can backfire because sometimes a dealer will want to move out models and clear inventory so bad that they will even take a loss on the financing in order to sell the car to you. The behind-the-scenes with the dealership and their lender can be very fluid and workable, so sometimes you may get a better deal for this reason if you go with an in-house dealer loan.
At any rate, before you enter into any type of agreement it is important to know what the exact terms are in regards of any hidden fees. For example, some lenders may charge you a heavy sum if you are late on a payment or want to sell the car and have someone else “take over payments.” If you are taking out a loan but plan on paying it off before the terms of the loan are up you also need to check and make sure that there will not be a penalty for early payment (usually not the case though, at least for in-house loans). Another thing is of course to know the full conditions behind the effective interest rate. For example, how long is that 0% good for, 12 months, 36 months? Or, is that 1.9% financing really for the entire 60 months of the loan. Most of this is common sense, but it never hurts to double check and make sure you didn’t miss something or that a different dealer in a different city does indeed have the same deal that the last one had.
