Car Loans - Save Big When Financing a New Car

According to a recent survey, 45% people dream of owning a new car. However, the biggest hurdle is the rising cost of today's vehicles. Before you consider visiting a dealer's showroom, read this report to stay better informed.

Financing a New Car

Unless you are among the lucky few who pay cash for new car purchases, you will need to quickly become informed on financing a new car. Most prospective car buyers decide their purchase based on the interest offered on the car loan. But there are various ways to finance your car, and knowing all your options upfront, will save you lots of money in the long run.

Pre-approval is great

Just as important it is to pay the best price on a new car, you might want to spend some time comparing the best deal on car loan and financing options. Experts recommend the ideal time to shop for car loan is before you plan on purchasing a new car.

When you are pre-approved, you have the peace of mind that the financing is taken care of and there is no more waiting for the loan to be approved. Most banks or financial institutions can approve your new car loan request in a couple of days.

Comparison shopping for car loan rates

With a little comparison shopping, you will be able to save several hundred dollars. Before your sign papers at the dealers office, talk to several banks and lenders to see what car loan rates are being offered. Now check if the dealer is able to give you better rates.

Even if you get the best loan rate for your new car purchase, watch out when the salesperson starts selling. In most cases you will never need extra accident or additional health insurance, extra life insurance or extra protection from rust-proofing and undercoating. Sales people will try to sell these additional promotions.

Borrowing from a dealer

Usually it is convenient to borrow from the dealer. In many cases, with one single application, you are able to purchase a new car and the loan. The application process is quicker, than if you were to go to a bank for a new car loan. If you are in a special situation like a first time car buyer, or a recent college graduate, the dealer may be able to help you. At times, dealers also run deep discount interest rates on some of the unpopular models. However, with popular models, you may not be able to get the best interest rates from a dealer. When it comes to popular models, you are better off financing from your bank or lending institution unless the dealer offers you a lower interest rate.

Now the important part. First negotiate the price of the car before you start talking about the financing options so the dealer can't hike the price of the car to give you a lower rate loan. At times, a dealer might offer your low rates between 2% to 5%, but check for the length of such a loan. Many of these loans are to be paid off within 24 months and monthly payments will be steep. If you fall back on your payments, the dealer will have the right to bump up the lower interest rate and charge you late fees.

Borrow money from bank or credit union

In most cases, banks and credit unions offer non-negotiable rates for new car loan. These rates are often lower than interest rates offered by dealer financing. Additionally, banks are less likely to push for other services along with the new car loan. If you are a member of a credit union, you may be able to get a better interest rate than a bank. There are several other financing companies who will offer higher interest rate loans but will be willing to accept borrowers who are greater credit risks. Remember them if you have a bad credit, and your loan application is rejected by banks or credit unions.

Borrow against current investments

If you have investments like a security portfolio or a cash value life insurance policy, you will be able to borrow money at a lower interest rate. Most of the banks or credit unions will be willing to make the interest rates more attractive for you.

Quick payback can save hundreds.

Always ask for the shortest payback time you can comfortably handle. Again, do your due diligence before you commit to the shortest payback time. You don't want to end up not being able to make payments on time and incurring other finance charges and late fees. To save several hundred dollars, opt for a lower interest rate, a smaller loan amount or a shorter term.

Summary on new car financing

Always get a pre-approval from a bank or lending institution before making a car purchase.
Talk with several lenders and understand your best financing options.
If the dealer offers you a lower rate, be certain they are not selling you unwanted promotions along with the car financing.
Ask for the shortest payback time on your new car loan.
For attractive rates, borrow against your investments (stocks, mutual funds)or cash value life insurance.