7 Steps to a New Car Loan

7 Steps to a New Car Loan
  • Opening Intro -

    If you're in a market for a new car, more than likely you won't be part of the small group of Americans who pays cash for their cars.

    That means finding financing in the form of a new car loan, the most popular way for consumers to obtain a new set of wheels.

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Obtaining a new car loan involves taking several steps and, when successfully accomplished, can lead to you getting behind the wheel of a new car.

1. Check your finances – Can you afford a new car? If so, how much of a car can you afford? The price of a new car is averaging close to $30,000, but new cars range from approximately $13,000 for a Smart ForTwo to more than $100,000 for a Mercedes S-Class. Find a car that suits your budget and your needs, not your prestige.

2. Review your credit – You won’t get approved for a new car loan automatically. Your credit score, which is based on your three credit reports, will determine if you can get a loan and at what terms including your interest rate. Get free copies of your credit report at AnnualCreditReport.com. You’ll have to pay a small fee to obtain your credit score, however.

3. Begin your research – Once you’re ready to shop, research your options by reading reviews on various websites including Motor Trend, Consumer Reports, Auto Trends Magazine, Car & Driver and Kelley Blue Book.

4. Get several quotes – Use the Internet to help you obtain quotes from at least three dealers. Examine each quote carefully to ensure that the options you want are included. Consider shopping for last model year’s model to find a good deal. For example, the 2013 Ford Taurus is refreshed, but you may find a better deal with a 2012 model.

5. Shop for a loan – Obtaining loan approval before you negotiate a deal may be the best way to go. Visit a bank or credit union and apply for a low interest rate loan. When you negotiate for a new car, you’ll already have you financing in place which will give you leverage to seek an even lower loan rate or take the manufacturer’s rebate.

6. Assemble your down payment – Expect to put at least 5 percent down when taking out a new car loan. Better would it be for you to put down 20 percent or more. If this percentage seems unattainable, then sell your current car to a private party or negotiate a trade-in with your dealer. The more money you put down, the better.

7. Agree to terms – When you find the car you want and have reached terms on its price and the value of your trade-in, you’ll know how much you need to finance after the down payment. For example, if your new car has a sticker price of $25,800 and you’ve negotiated it down to $23,300 after rebates, and you have put $6,300 down, then you’ll need to finance $17,000. Calculate interest rates for 36, 48 or 60 months and come to terms with the loan that is right for you.

If you can’t afford to buy a new car, then don’t. You can find a late model used car through Car Max or even take over a lease through Lease Trader. Your desire for a new ride may be a good one, but it isn’t worth the hassle if you’re saddled with too much debt.

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Categories: Consumer Financing