At Carolina Trust we are always looking for ways to help members improve their lives and make sound financial decisions.
This e-book on Car Loans is our way of sharing our research and expertise on the car buying process so that we can remove the mystery around how to responsibly shop for a car!
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Buying a car is a major financial decision. In fact, outside of your home, your car may be your most valuable possession. As you head into the dealership to start shopping for a car, make sure you do your homework. With a little bit of guidance, you can find a great car at a great price, and get a loan that fits your needs. Before you shop for a car, take some time to read this guide to learn what you need to know about cars and car loans.
When you need a car, you may not have the luxury of waiting until the "best time" to start your purchase, but if you have some flexibility, you can try to time the purchase around the calendar. Dealer incentives and the motivation of your salesperson can help you get a great deal on a car purchase, if you shop at the right time.
First, consider the month you shop. Typically, October, November, and December are the best times to buy a car. There are two reasons for this. First, dealerships are nearing the end of their quota calendars at this time, and they are motivated to reach their annual sales goals. Second, dealerships are anticipating a flood of new vehicles for the coming calendar year. The current year's model will be discounted to account for this because they need to move them out of the door.
Dealerships have quotas not only for the year but also for the month. If they are not close to meeting their goals, they may offer better pricing or incentives if you shop towards the end of the month.
That said, the very last day of the month may not be the best time, but rather a few days before the month's end. Each dealership has its own time frame for quotas, and they may not sync perfectly with the calendar month.
Finally, the day of the week you shop has an impact on the price of your vehicle. Weekends are prime shopping time for car dealers, so you can't expect a good price on a vehicle if you shop on the weekend. Instead, consider shopping early in the week, when the salespeople are starting to look for new sales to increase their income for the coming week.
Holidays can also bring discounts on new vehicle purchases. Three specific holidays tend to bring big discounts on vehicles, including:
Timing has less of an impact on your car loan than it does on your vehicle purchase. However, if a lender receives commissions on car loans, shopping toward the end of the month can help you get a slightly better rate or faster approval.For more tips and other factors to consider while searching for your new vehicle, review our blog on the best time to buy a car and get a car loan.
Once you've chosen the right time to buy your car, the next step is to learn about the prices you will see when you walk into the dealerships. If you understand the pricing on the sticker of the cars you're looking at, your negotiation skills will increase.
The MSRP is the "sticker price" on the vehicle because it's the price listed on the window sticker on the vehicle as it sits in the dealership. MSRP stands for "manufacturer's suggested retail price," and that's exactly what it is. This price is what the manufacturer suggests the dealership sells the vehicle for. This does not mean it is the selling price. It also does not mean it's the price the dealership paid for the vehicle.
The MSRP is simply a suggestion. It gives the dealership and buyer a starting point for negotiations. It does not include several things that impact the total cost of purchasing the vehicle, including:
The MSRP is a good tool to use to compare vehicles and to apply for your loan. It gives you a ballpark for what the vehicle will cost, and allows you to compare the cost of similar vehicles to each other. While it may not be your out-the-door price, it is a good benchmark to use as you shop.
The MSPR also gives you a starting point as you negotiate. If the dealer is highly motivated to sell, they will negotiate below this benchmark. However, you may actually pay more than this price. If you're shopping for a vehicle that's in high demand, the dealership can put an asking price on it that's higher than the MSRP. Remember, MSRP is nothing more than a suggestion.
For more information on how the recommended selling price impacts your car loan application, review our blog on the MSRP meaning and how you can prepare for negotiations at the dealership.
Now that you understand pricing and timing for your vehicle, it's time to start shopping. How can you find the best vehicle and the best car loan rates to make that vehicle affordable? By carefully considering your needs and then shopping based on those needs, you will quickly find the best loan and vehicle for your situation. Here is a step-by-step guide to finding the right car.
If you are unsure if your credit is good enough to qualify for a car loan, review our blog "7 Tips on How to Buy a Car with Questionable Credit."
The first step is writing out your needs. What, exactly, do you need in your new vehicle? Does it need to carry a certain number of passengers? Do you need to be able to haul a trailer? Is technology, like a backup camera or in-vehicle movie players, important to you? Make a list of the things you know you need in your vehicle, then make a list of the things you might want.
A budget is helpful before you begin shopping. Typically speaking, your car payment should not be more than 15% of the money you bring home every month. You can find cars that are more or less than this amount, but keeping your budget in mind will help you shop smart. If you're not sure what the monthly payment would be for a specific price range, use an auto loan calculator to help.
Wondering if leasing would be a better fit for your budget? If so, review our blog "Lease vs Buy: Which is Best for My First Car."
As you consider the vehicle that's right for your needs, you must consider all of the costs of ownership. Some things that can vary from one vehicle to the next include:
If you're trying to decide between a few similar vehicles, weighing these costs of ownership can help make your decision final.
Before deciding on the right vehicle for your needs, take some test drives. Sitting behind the driver's seat of a vehicle and feeling the vehicle's responses to your driving habits will help you find one that not only fits your checklist, but also feels great to drive.
Schedule some test drives before you start shopping in earnest. If you can, take the vehicle through some of your typical driving experiences, such as freeway driving or rural driving, depending on your commute. Look over the location of the various controls, listen to the sound of the engine, and even take time to listen to the stereo and sound system. Sometimes a test drive will help you rule out a vehicle you thought you'd love, and this will make your search for a new car easier.
A car loan is an important part of the shopping process. You have three basic choices for your car loan. These are:
If you choose to get a loan through the dealership, you will want to remember that car loans are a major part of their income. They are going to try to fit you into a monthly payment, and will work to negotiate the payment amount.
Instead, consider working with a bank or credit union. Get pre-approved for a loan early in the process, then shop knowing what you can afford to spend.
The one exception may be when shopping for a new car. New car incentives often include the car loan in the overall incentive package. Zero-percent financing or large cash rebates can make your new car purchase more affordable. Keep in mind that these types of incentives often come at a cost somewhere else in the process, such as a higher sales price or less value for your trade-in, so do your research before signing the loan documents.
For more tips on how to save time and money, review our blog on finding the best cars and car loans for you.
Misinformation about auto loans certainly exists. To learn the truth about auto loans, review our blog " 7 Common Misconceptions About How To Get An Auto Loan."
If you're shopping for a used vehicle instead of a new one, you may have additional considerations. While you will still want to follow the previously mentioned steps, including the test drives, vehicle research, and needs estimations, you will need to dig a little more deeply to avoid buying a lemon. Here's how you can protect yourself.
If you're shopping for a used vehicle, you don't have to shop only with the dealership. You can also look in classified ads or shop online to find private sellers. If you buy from a private seller, make sure you carefully research your options and the seller to avoid scams. There are several steps you can take to ensure that the vehicle itself is worthwhile as well.
A Vehicle History Report is invaluable in your search for a used car. The best used cars will have few owners and no accidents on their history. If you notice serious flaws on the Vehicle History Report, the price should reflect that. CarFax and AutoCheck are both popular websites that let you see the car's full history based on its VIN.
If you get seriously interested about a used car from a private seller, ask if you can have your mechanic check it over before you purchase. A reputable seller will be willing to let you do this, provided they can come with you to the appointment. If the seller isn't willing to let you have your mechanic check the vehicle, chances are high the seller is hiding something.
Like new vehicles, used vehicles have three basic choices for car loans. However, you have fewer incentives to shop for a loan at the dealership, because the special financing offers are rarely available with used vehicle purchases. Instead, the best used car loans are typically through a bank or credit union, rather than at the dealership.
Still uncertain how to select the right car and loan for you? Be sure to review our blog on selecting the best used cars and car loan for you.
Now that you know what to do to find the best used cars and new cars, the next step is to figure out the right car loan. The most important factor to consider in your car loan is the rate. Car loan rates are the interest rates charged for borrowing money to buy a car. Understanding how they are figured calculated and where you will get the best rates is critical when shopping for a car. Car loan rates are based on the vehicle, your credit score, current interest rates, and the lender's requirements.
Your credit score directly impacts the rates. The better your credit, the better your rate. Checking your credit rating, and taking steps to improve it before applying for your loan, can help you get a better rate.
The vehicle you choose also impacts the loan rate. Typically, car loans for new vehicles tend to be lower than car loans for used vehicles. This may not make sense to you, since new vehicles cost more. However, lenders look at the vehicle's value, and used vehicles tend to be worth less than new vehicles, so they have slightly higher interest rates. This higher rate protects the lender if you fail to make your monthly payments on time.
Car loan rates are based on federal interest rates. When those increase, so do the rates for car loans. When the federal interest rates drop, so do the rates for car loans. Consider applying for pre-approval from your bank or credit union when you see rates steadily decreasing because chances are they will increase again in the future.
Finally, shop around carefully for your loan. Don't assume that your only or best option is at the dealership. While some buyers will find the dealership offers a good choice, they are not the only choice. You can, and should, approach multiple lenders if you're looking for the best rate on your car loan.
A car loan is a long-term financial commitment. Before you sign on the dotted line, be sure you are getting the best deal by reviewing our blog on getting the best car loan rates available.
An auto loan calculator is a great tool to use when shopping for a new or used car loan. It will help you understand not only the amount of your monthly payment but also what different changes to your loan terms will do to that monthly payment. Here's how you can use one as you make your vehicle purchase.
An auto loan calculator allows you to input various aspects of your loan. These include:
Once you input these values, you will see how much each month's payment is. You may also be shown how much in interest you'll pay over the life of the loan.
The best thing to do with a car loan calculator is to calculate your monthly payment. If you know the interest rate on your loan and your estimated car purchase price, you can plug that information in to the calculator to see the amount of your monthly payment. Change the loan's term to see how that changes your monthly payment amount.
If you are shopping for different loans, a car loan calculator lets you see the difference they will make on your monthly payment and the overall cost of the loan. Even a change of just one percent can add up to big changes. Using a car loan calculator will show you those changes quickly, and this may motivate you to shop harder for a different loan.
Maybe you're considering selling your existing car first, or using it as a trade-in. Perhaps you're considering how much money to put down on the car you purchase. Again, a car loan calculator will help you decide how to handle these questions. By plugging in the values, you can see which choice makes the most financial sense.For more information on how calculating your payment ahead of time can save you money in the long run, review our blog on auto loan calculator tips.
Many car owners don't know that they can refinance their car loans. Doing so may let you get a better interest rate, shorter term, or lower monthly payment. If your current car loan is too expensive for your needs, or you want to pay it off more quickly, refinancing may be the option. Before you refinance, make sure you do your homework.
Before you refinance, check the terms on your existing loan. Many lenders charge a fee if you pay the loan off early. If you have a pre-payment penalty, understand how this affects your refinance.
Before you refinance your car loan, make sure it makes sense financially. Some reasons that it makes sense to refinance includes:
There are times when refinancing does not make financial sense. Here are some circumstances when you should just stick with your current loan:
If you think refinancing makes sense, then take your time to research your loan options. Talk to several lenders, including both banks and credit unions, to find out what your options are. You will find a bit of variety from one lender to the next, so it makes financial sense to do your homework.
For more information on the best time to refinance, review our blog on how to refinance your car loan.
Buying a new car takes time and research. Once you put in that time and find the right car loan and the right car, you can move forward with confidence, knowing your newly purchased car and loan will both be a good fit.
If you are a first time car buyer and want more information before making a decision, review our blog "8 Things Every First Time Car Buyer Should Know."
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