How to finance a car or acquire it in the leasing modality
Are you about to buy a car? Apart from paying it in cash, you have other options. Whether you are financing your car purchase or leasing it, here are a few things to keep in mind.
Before buying or acquiring a car in the leasing modality
- Get a copy of your credit report before you visit the dealership location. Visit AnnualCreditReport.com or call 1-877-322-8228 for a free copy. Your credit report contains information that affects your chances of getting a loan, and how much interest you will have to pay to borrow money.
- Get the turnkey price for the car you’re interested in writing before you visit the dealership and before you discuss financing. That means you have to ask the dealer to send you the full price of the car, without calculating financing, including fees and taxes. Having this information in writing before you go to the dealer can help you compare other dealers’ offerings, make it easier to spot additional fees and other “extras” the dealer might add to your deal, and can help you focus your attention on the total cost (not just the monthly payment).
- Know what the total cost is, don’t just look at the monthly payment. Offers with low monthly payments may be tempting, but don’t just focus on your monthly payments. For example, loans with lower monthly payments often have longer terms and higher interest rates, which will add significantly to your overall cost. When figuring out how much you can afford, use the Budgeting worksheet as a guide to making sure you have enough income to cover your monthly expenses and pay your car payment.
- First, consider saving for a down payment. The down payment reduces the amount of money you have to finance or figure into the lease agreement. That will reduce the overall costs of financing or leasing.
- Ask if you will need a co-signer. If you don’t have a strong credit history, you may need a cosigner for your finance contract or lease agreement. The consignees or co-signers assume the same responsibility with respect to the contract. If you can’t pay what you owe, your consignee will have to. Any late payment will hurt your credit and that of your consignee. No Down Payments Car Loans
How to calculate the value of your current vehicle if you trade it in as part of your payment
- Find out the value of the one that you will deliver as part of the payment or in exchange (trade-in, in English). Consult the guides from the National Automobile Dealers Association (NADA), Edmunds, and the Kelley Blue Book. This information could help you get a better price from the dealer.
- Wait until you have finished negotiating the best possible price for your new car to mention the possibility of trading in your current vehicle as part of your payment. You want to be sure the dealer doesn’t adjust the car’s sales price to make up for a generous offer to trade in your current car.
- Find out how much you owe. If you still owe money on your car, giving it up as part of your down payment may not help much. If you owe more than the car is worth, it is said to have a negative net worth. If you want to trade in the car, ask what effect the negative equity will have on your new financing or lease agreement. For example, this could increase the amount you are borrowing, the length of your financing agreement, or the amount of your monthly payment.
How to finance a car
You have two financing options: a direct loan or dealer financing.
Direct Loan – means you are taking a loan from a bank, finance company, or credit union. When you take out a loan, you agree to pay the amount financed, plus a finance fee, over a set period of time. Once you’re ready to buy a car from a dealer, you use this loan to pay for it.
With a loan, you can:
- Get credit terms early. If you get pre-approved for financing before you buy a car, you’ll be aware of the terms, including the annual interest rate (APR), the length of the loan (number of months), and the maximum amount you can borrow. Use this information to negotiate with the dealer. The APR is the cost of credit in terms of an annual basis. This rate depends on several factors, including your credit score, the amount of your loan, the interest rate and fees you are charged for credit, and the length of your loan.
- Comparison between dealers. If you are pre-approved, it will be easier to ask a dealer to give you the “turnkey” price of the car you are interested in writing (that is the full price of the car, before financing and including taxes and fees). ). That price helps you identify and negotiate the best deal for your purchase and the best financing without wasting time at the dealership.
Dealer Financing – means you are applying for financing through the dealer. You and the dealer sign a contract stating that you purchase a car and agree to pay, over a period of time, the amount financed plus a finance charge. Typically, the dealership sells the contract to a bank, finance company, or credit union that will manage the account and collect payments.
Dealer financing can offer you:
- Multiple financing options. Because the dealer may have relationships with a wide variety of banks and finance companies, you may have access to a wide variety of financing options. But keep in mind that the dealer usually makes a profit by offering you the financing and may not always offer you the best deal for you.
- Special programs. Dealerships sometimes offer low-rate programs or manufacturer-sponsored incentives. These programs may be limited to certain cars or have special requirements, such as a higher down payment or shorter contract length. These programs may also require a high credit score. Find out if you qualify.
Find the best financing deal
Compare financing offers from various lenders and the dealership. Remember, don’t just focus on the monthly payment, as the total amount you’ll end up paying depends on the negotiated price of the car, the APR, and the length of the loan.
Many lenders offer long-term loans, such as 72 or 84 months. Although these loans may lower your monthly payments, they may have high-interest rates. And the longer the loan period, the more expensive the loan will be. Cars lose value quickly once they leave the dealership; so with long-term financing, you may end up owing more than the car is worth.
Some dealers or lenders may require you to purchase credit insurance that will cover your unpaid balance in the event of your death or disability. Before you buy it, consider the cost and whether it is worth it. Review your existing insurance policies to avoid having duplicate benefits. Under federal law, credit insurance is not required. In fact, the law prohibits a lender from dishonestly including credit insurance on your loan without your knowledge or permission. If your dealer requires you to buy credit insurance to finance your car, it must be included in the APR.
Be sure to ask the dealer questions about:
- Extras or complements of the car. The extras or add-ons are not free. They are additional products or services that you buy and finance along with the car. Some of the most common extras are insurance that covers gaps in your policies ( gap insurance, in English ), glass engraving, and extended warranties and service contracts. There is no problem if you say no to the extras and ask the price. It is not right for dealers to add extras to their offer or lie to you about it. Know exactly what you are buying and protect yourself. Ask the dealer to list the prices of all the extras they suggest before you visit the dealer. If you finance the purchase, you’ll want to know how much each extra will cost you over the life of the loan. Ask if there are any limitations or conditions on the extras. They may not cover what you expected. If it’s something you don’t want or need, say no.
- Manufacturer incentives. Your dealer may offer you manufacturer incentives, such as lower finance rates or money rebates on some makes or models. Be sure to ask your dealer if there are any special financing offers available for the model of the car you are interested in purchasing. These discounted rates are generally non-negotiable and may be limited by your credit history. Ask the dealer to give you the answers in writing.
- Sales, discounts or special prices. Please inquire in advance if you qualify for any available offers. Dealers offering rebates, discounts, or special pricing must clearly explain the requirements for these incentives. Look closely for any restrictions. For example, to access these offers you sometimes have to be a recent college graduate or member of the military, or they may only apply to specific cars. Don’t assume that rebates are already included in the price or terms you were offered. Remember that it is in your best interest to have your questions answered in writing.
- Your Annual Percentage Rate (APR) . Negotiate the APR and payment terms with the dealer in the same way that you negotiate the price of the car. The APR that you negotiate with the dealer usually includes an amount that compensates the dealer for taking care of the financing. Negotiations can take place before or after the dealer accepts and processes your credit application. If you brought the pre-approved financing offer with you, be sure to compare the APR, loan term, and amount financed of the two offers to determine which is best. You may decide to keep the financing you found on your own, even if you were able to negotiate a discounted rate with the dealer.
Ask questions about the terms of the contract before you sign it. For example, before driving the car away from the dealership, ask are the terms of the contract are final and fully approved. Does the price on your contract match the price the dealer sent you in advance? And if the dealer tells you that they’re still working on the approval, that means the deal isn’t final yet. Consider waiting to sign the contract and keep your current car until the financing is fully approved.