ONLY at Keith Pierson Toyota as low as 0% 36 months on Camry, Corolla and RAV4.
Financing a car can cost you thousands of dollars more than buying a vehicle for cash. However, that doesn’t mean you shouldn’t finance. Financing can be the best way to go for several reasons — but only if you understand how to finance a car the right way. That’s why we’ve created the following tips to help you navigate the financing process without making some of the typical mistakes others have made.
Check Your Credit Score
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Potential buyers should always check their credit scores before beginning to shop. Why? Because your credit score impacts your car loan more than any other factor. The higher the credit score, the lower the interest rate you’ll qualify for when you apply for a car loan. Conversely, the lower the credit score, the higher the interest rate you’ll end up with on your loan.
Credit experts recommend fixing any credit issues before applying for a loan. In many cases, people can improve their credit score without too much effort or even money. A decrease from 7% to 5% APR on a $20,000 five-year loan can save you over $1,100.
Get Competing Loan Offers
Before arriving at a dealership, we recommend shopping for car loans with several institutions. You can start with your bank or credit union, as these institutions typically offer existing customers discounted rates. You can shop around at other local banks to see what they offer, too. We also recommend searching online for some national lenders. Sometimes, national companies are able to offer better rates than smaller, regional banks because they benefit from a higher volume of loan customers. After shopping around, you can use our online finance application to get pre-approved for an auto loan as a comparison.
When comparing loans, you want to look first at your interest rate and then at the length of the loan. You might qualify for a 5% interest rate with one lender and 7% with another, but if the length of the 5% loan runs two years longer than the 7% loan, you’ll pay more in interest over the life of the 5% loan.
Figure Out Your Budget
Ultimately, your monthly loan payment must fit within your budget. We recommend a thorough examination of your monthly income and expenses to determine how much you can afford to spend each month on your loan. You also need to factor in your car insurance costs. Many lenders require additional insurance like gap insurance and collision coverage to protect them against a total loss of the vehicle. These insurance policies cost more money, and if you haven’t had them on previous plans, you can expect to pay $100 or more each month.
Determine What You Need in a Car
Now that you’ve fixed your credit, found competing loans, and planned out your budget, the fun of actually shopping for a car can begin. Before you set foot on a dealership’s lot, take the time to make a list of the features you need in a car, truck, or SUV. Say you commute to Jacksonville every day. In that case, you’ll need something fuel-efficient and safe. If your job requires you to bring tools, equipment, and supplies to work each day, you probably need a pickup.
You can make a second list of features you’d like to have but can live without. Maybe some of the latest driver-assist features like adaptive cruise control would be nice, but if you only occasionally get on the highway, you probably could do without them.
A third list — perhaps the most helpful of all — should contain all those features you don’t need or want. This third list will help you avoid paying for bells and whistles you don’t care about. For instance, a four-wheel-drive truck can be a lot of fun for those off-road adventurers, but if you never go off the road, why pay extra money for that feature?
Money Down
If you have at least a portion of the money needed to purchase a car, you should put as much of that as you can afford toward a down payment. Putting money down will lower the amount you have to borrow and ultimately reduce the amount of interest you pay over the life of the loan. A down payment will lower your monthly payment as well.
The only time you don’t want to spend your money for some or all of a car purchase would be if you could earn more in a savings or investment account instead. If a dealership gives you a zero-percent interest rate, there’s no need to put extra money down. You can earn 1-2% interest in most savings accounts. Suppose you have a stock portfolio that returns 7% annually, and you qualify for a 5% interest rate. In that case, you’re better off keeping your money in the stock portfolio rather than using it as a down payment because you’ll net 2% profit by keeping there.
Keep the Loan Term as Short as Possible
Keeping the loan term short will save you money in the long run. However, there’s a trade-off here that involves your monthly payment increasing or perhaps the need for a higher down payment. Buyers must strike a balance between loan length and monthly affordability. At Keith Pierson Toyota, our finance department experts have years of experience finding the correct loan terms to fit any financial situation.
A shorter loan will help you avoid getting upside down on your loan. Being upside-down refers to owing more than the actual value of your car, and it happens far more often than you might think. Insurance costs more when you’re upside down, too, so you should avoid it if you can.
At Keith Pierson Toyota, we know finding the right financing package can be the difference between buying the car of your dreams or settling for something less. That’s why our finance team has cultivated so many relationships with local and national lenders. We leverage these relationships every day to find our customers the best rates and terms possible.
We don’t want to sell you a car you can’t afford. We want you to enjoy an experience that fits your needs and budget — one you’ll want to repeat and recommend to your friends and family. We invite you to explore our loan options online or come sit down with one of our friendly, knowledgeable finance team members to discuss your situation. No matter what financial concerns you have, our team can find you a loan that makes sense.
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