The Hidden Costs Of Car Loans

by William Blake

If you’re considering buying a car, or even just refinancing your current auto loan, you’ll benefit from some simple research before making a final decision.

Lenders depend heavily on your FICO and other information found in your credit report when they are determining whether to extend you credit and what interest rate they will offer you. Knowing this information and having a good idea of your credit worth is important.

Remember to request a copy of your credit report from the three reporting agencies and go over them with a fine tooth comb before seeking a car loan.

[Equifax: PO Box 740241, Atlanta, GA 30374;

Experian: PO Box 2002, Allen TX 75013,

TransUnion: PO Box 2000, Chester, PA 19022;]

Next, consider carefully whether any 0% loan offered by a dealer is the best deal for you. That number certainly looks attractive, compared to the 4% or higher that is often the next best thing. But you might actually be better off taking the immediate cash rebate instead.

Make use of loan calculators found on the internet to determine what deal is best for you. You may find that your monthly payments or the overall repayment amount is lower with a low interest rate, such as 4%, and a good rebate than if you had a 0% loan.

Before you go out shopping for a new car have your financing set. This is always a plus because it lets you know exactly what you can afford to spend on a car and what your monthly payments will be.

You’ll also have a bargaining advantage negotiating with the dealer, since part of the purchase price they offer is always dependent on whether they will make the loan. Dealers will often accept a lower purchase price if you take their financing offer. Run various scenarios in advance to determine where your trade-off amount starts.

If they come down low enough on the price it might be to your benefit to allow them to finance the purchase, even if your plan is to refinance with a different lender the very next day. Be care with this though. Remember a refinance costs money. Count all costs.

Another advantage of having pre-arranged financing is the confidence you get from being able to walk away from any unattractive deal. New cars especially are virtually identical from one dealership to the next. If you get a better deal elsewhere, it may be worth it to go on to the next. Before you do, though, consider not just the immediate or lowest price but also what service you’ll get after purchase.

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