How to Finance Your Car Smartly?

When you're looking for a vehicle, you don't want to wait until the "box" (what dealers call the office where you sign paperwork) is empty. Then you can start to consider financing. You can save a lot of money by following these proven steps before you leave the dealership to pick up your new wheels.

1. Before You Visit the Dealership, Be Sure To Verify Your Credit Score

Dealerships will often advertise very low-interest rates on new automobiles:

2.9%-1.9% or sometimes even zero. This is because these rates are only available for car buyers with good credit scores (i.e. a score of 750).

Although you may not have the best credit score, dealers and banks will still provide a car loan. Because they know they'll make a lot out of you, and if it doesn't, they'll just repossess the car while you're at Trader Joe's.

Buyers with low credit scores (lower than 700) can still receive a reasonable interest rate but may not qualify for the best promotions. Rates will rise rapidly for scores below 700. Rates for car loans may increase if you have below-average credit (under650).

2. Get Financing Quotes Before You Go If Your Credit Score Isn’t Perfect

If you have a good credit score (750+), the dealership will usually be able to offer you the best financing rates. Money under 30 hasn't said this before, but it's true that you don’t have the need to shop around for the best rates.

This is because the dealer will act as a broker to show high-credit patrons the best options among multiple lenders.

Poor credit history will make things worse. You will be the one that the dealer takes advantage of and you will not qualify for anything even remotely "good" in terms of rates at the dealership.

If this is the case, it's a good idea for you to do some online research on rate options before you go to the dealership. Online rates and rates offered by credit unions and other banks are likely to be cheaper than the rates you will receive from the dealer.

3. Keep the Term as Short and Affordable As Possible

A dealer will offer you low monthly installments, zero down, and long loan terms of either four, five, or six years, regardless of your credit rating.

4. This Is What You Don't Want

Lower monthly payments are an old-fashioned and manipulative sales tactic. They're popular among dealers for the following reasons:

• They make it look like you have more money to buy a car than you do.

• They make it look like you're getting an amazing deal when in reality, you're actually being screwed.

• They provide you with the ability to offer additional products.

• They confuse buyers.

• They make a great impression on their lenders and will pay you a lot of interest.

5. Buy a Car that You Can Truly Afford

Your car is not a good investment, and it will lose value over time. In fact, most cars will lose their half-life within five years. Many luxury and sports cars also depreciate much faster.

If you're not sure whether refinancing is right for you, use our auto refinance calculator to see how much you could save. All you need to do is enter some basic information about your loan and vehicle, and we'll calculate your savings.