The Best Way to Finance a Car
Buying a new car with cash is probably every person’s dream; it can help you avoid paying interest on loans. Sadly, making cash payments may not always be possible. So, what can you do when exclusively paying cash is not an option? Read below to find out.
1. Make down payment savings
One of the essential pieces of advice for anyone buying a car is to put down at least 20% of the total cost as a down payment. This down payment will be deducted from your loan. So, it not only lowers your expenses, but it may also have an impact on your interest rate. You will save a lot of money in the long run if you save money and put down 20% or more of the total cost.
2. Become familiar with your credit score
Check your credit score before buying a car. You can check it for free; however, some of the free options are based on speculation. As a result, they may not display the score that lenders will view. Find your official FICO score from several credit reporting agencies.
If you have a low to average credit score, be sure to improve it before applying for auto financing. You’d be surprised how much money you can save on interest just by improving your credit score.
3. Use cash to pay for other fees
When making payments, you should also consider other fees, including the dealer fees, documentation fees, and the sales tax. Instead of being rolled into your loan, all fees and taxes are better paid in cash. Most dealerships would gladly add these expenses to your loan or offer to pay for sales tax at the expense of raising your debt. You may have to pay additional interest on the sum you contributed for sales tax in the long term.
4. Find a non-recourse loan
The financing institution has the power to repossess your car if you default on your loan. In addition, you may be left with a deficit if the vehicle isn’t worth what’s left on the loan. In this case, consider shielding yourself from this issue by taking out a non-recourse loan. You won’t have to pay the discrepancy if you default on this loan.
5. Avoid late payments
It’s possible to be late on a payment from time to time, whether it’s because you forget or you can’t afford the payment at that particular instance. It happens to the best of us, but be sure it doesn’t become a habit. If you pay late, you risk incurring high costs and penalties. Making on-time payments not only improves your credit score but also saves you money over time.
6. Always choose a loan for a shorter term
Collect estimates from everyone willing to lend you money before deciding on one dealership or company. Finding a lending firm should be similar to shopping for any other major purchase. Before you sign any contracts, evaluate the amount the firm is willing to loan you, the length of the repayment plan, and the interest rate it’s providing to ensure that you’re getting the best deal.
It can be daunting trying to choose the right car for your needs as well as finding ways to afford it. It’s even more complicated when you’re buying a car for the first time. Nevertheless, these few steps should help you finance a car the right way and without regrets.