Once you have decided on a vehicle type, it's time to sit down with the dealership and talk money. Specifically, it's time to determine how you will pay for your car. Most cars today are financed. That is, the consumer takes out a loan (from a bank or through the dealer) in order to pay for the car. A very small percentage of cars are purchased outright (cash on the barrelhead). If you don't know anything about auto financing, this can be a confusing time.
Several things will affect the amount of your monthly car payment:
- The total price of the car (tax, tag, title and incentives included)
- The length of your loan
- Your down payment amount
- Your credit score
You can influence several of those factors. For instance, if you opt for a 60-month loan, your monthly payments will be lower. If you opt for a 36-month loan, your payments will be higher, but the vehicle will be paid off more quickly and you will pay less interest.
In addition, you control the amount of your down payment. This amount will affect the total price of the vehicle, because it is taken off the amount before financing. The larger your down payment is, the lower your monthly payments will be.
You can also have some influence over your credit score. Know your credit score before you approach a dealership about buying a car. You are entitled to one free credit report per year (some states give you 2). Use this tool to your advantage. If you know that your credit is subpar, take steps before venturing out to the dealership.
- Pay off outstanding debts
- Get current on your bills
- Make payment arrangements with credit card companies and other parties
- Avoid filing for bankruptcy or "debt consolidation"
If your credit rating is good, you will receive a much better deal when the time comes to make a purchase. In this case, knowledge truly is power. By being an informed and responsible consumer, you can influence the price you will ultimately pay for your new car.
You will also need to choose whether you want to finance with the dealership or find a bank to provide you with a loan. Financing through the dealer can be very convenient, allowing you to subtract a step from the purchase process in most cases. However, a "buy here/pay here" dealer is never a good option, unless you simply cannot get a loan through other means. Once you have your financing in hand, you can purchase your car and enjoy all the benefits.