Financing a new car

Reader question:

I want to finance a new car. What do I do?

Ricky

Great question.

Seventy percent of new cars get financed, and, though at a lower rate, used cars are often financed, too. If you’re buying a new car, you’re probably going to finance it. And, if you’re going to do that, then you should know what you’re doing so that you can do it right.

There are bunch of places you can get financed through. There are banks, credit unions, websites, the dealership, the manufacturer, even a home equity loan. Website loans tend to be easy to get, dealership and manufacturer loans tend to cost more, and home equity loans tend to come with good interest rates and are often tax deductible. Every way has its pros and cons.

• Get your numbers together. Don’t get sucked in by a low down payment or interest rate, because usually those will be offered and then offset by higher prices in other areas. Know how much the down payment, the interest rate, and the monthly payments will be beforehand and look at them altogether before deciding whether you are getting a good deal or no.
• Tricksy dealers. Sometimes they’ll quote you a low total price on the car, and then charge you outrageously for the interest or down payment (or both!). Then again, if they quote you an extremely low interest rate, they aren’t going to let you haggle with the price. Watch out for this kind of behavior.
• How long? Lower monthly payments are nice, but they cost more in the end, because in the end the car costs the same amount and you’re actually paying more than someone with higher monthly payments would be paying. The longer they make the term of the loan, the more you’re going to have to pay in interest.
• Tricksy dealers, part II. They’ll pay off your car? It doesn’t matter how much you owe on it? And then you can get a new car without any worries about the old one? Sounds awesome, doesn’t it. Hi, it’s not. Because, you know what? They’re just going to tack whatever you owed on your old car onto the price of your new car somewhere else.

Cheers,

Fashun Guadarrama.

Financing a new car