Estimated read time: 3-4 minutes
This archived news story is available only for your personal, non-commercial use. Information in the story may be outdated or superseded by additional information. Reading or replaying the story in its archived form does not constitute a republication of the story.
So you need a new car, but you can’t afford to pay cash for it. If you’re like most people, you’re probably worried about financing some or all of the cost of the vehicle.
There’s good news. Interest rates are still very low, and you can likely finance your car loan at a very reasonable rate very reasonable rate to. However, because financing will increase the total cost of the car, it’s important to shop for the best deal you can get. Here are seven things you should know before making that financing decision:
1) Know what you’re signing up for. Make sure you fully understand the loan agreement before signing any documents, including:
- Exact price you’re paying for the vehicle
- Amount you’re financing
- Finance charge
- Annual percentage rate (APR)
- Number and amount of payments
- Total sales price 2) Don’t be fooled by an advertised low monthly payment.
If the length of the loan is long and the interest rate high, you will be paying more than you may have to.
3) Be wary of extremely low promotional APRs.
Though you may qualify for particularly low rates by making a large down payment, it may be more affordable to pay higher financing charges on a car that is lower in price or to buy a car that requires a smaller down payment.
4) Look for manufacturer’s incentives.Dealers may offer cash back on specific models. The type of financing you choose may affect your ability to qualify for the cash incentive. Figure out how manufacturer’s incentives will factor into the total cost of the car.
5) Beware of zero percent financing.
Zero percent financing sounds like an amazing bargain – after all, how can you beat a no-interest loan? Often, you can. Such “deals” frequently come with inflated prices for extended warranties and loan insurance, high application fees, and pre-payment penalties.
Plus, because you forfeit the rebate option, you end up paying a higher price for the car. You may also be required to repay the car in three years or fewer – resulting in a very high monthly payment.
Furthermore, zero percent financing is actually quite elusive. It is only approved for those with very good credit, as determined by the lender, and it is often not available for the most popular cars and trucks.
6) Dealer and finance company loans.
At an auto dealership, you will be encouraged to use dealer financing. While not all dealer loans are bad, in most cases a loan directly from your financial institution will get you a lower rate.
7) Know how much you can spend.
Before shopping, it’s always a good idea to visit your financial institution. Then, once you know how much you can spend on a new car, you can find the perfect fit for your situation. An alternative option would be to use a good auto loan calculator. These can help you figure out exactly what you can afford.
University Federal Credit Union is a member-owned financial institution open to anyone who lives, works, volunteers or worships in Salt Lake County. Federally insured by NCUA.
