Auto Financing 101

Tips for Steering Your Way to
Optimal Savings on Your New Car

by Christopher Burdick

Many people spend a lot of time and effort in securing a great price on their car, only to get taken advantage of when it comes to financing. Dropping the ball in the financing phase of your car purchase can easily offset any savings you've negotiated on the base price of your vehicle if you're not careful. The best thing you can do in order to prevent this from happening is to know as much as you can about your options before talking about financing with a car dealership. With this in mind, we offer the following financing tips…

Talk Total Cost Instead of Monthly Payments

When you start looking at a car, and the auto dealer asks how you want to pay for it, make sure you tell them that you "aren't sure" if you want to finance or not. Tell them that you want to look at the overall price of the car, not monthly payments. Some dealerships will try to use monthly payments to obscure hidden costs. Always negotiate the price that you will buy the car for first, then work on the financing.

Do Your Homework in Advance

Find out what financing rates are available from sources outside the dealership before you talk to the dealership about financing. Check out web sites like eloan.com. You can also get financing through the American Automobile Association (AAA). Talk to your bank or credit union as well. This way, when you go in to talk to the dealership, you already know what rates you can get, and it isup to the dealership to try and beat those rates. This approach forces dealerships to offer competitive financing rates and discourages them from attempting to hide extra charges within the financing deal.

Decisions, Decisions - Low Financing vs. Cash Back

It is not uncommon for dealerships to run promotions offering a low percentage rate OR a cash discount on vehicles. Most of the time, these special financing offers are at a particularly low rate that is not normally offered, usually in the 0% to 3% range. If you are paying cash for a car, the obvious choice is to take the cash discount. However, if a customer wants to finance the car, should they take the cash discount, or the low financing rate? Perform some calculations will help you determine the best option. You can have the dealership do this for you, or if you prefer, you can use a payment calculator like the one available at edmunds.com to estimate your total expenses. If you do decide to take the cash back, you can still finance your purchase through the dealership. However, you should first research financing rates with outside lenders, and then request that the dealership either match or beat those rates.

Last But Not Least… Pay Attention

The last and most important rule - even though you may want the process to be over with quickly, you need to look over the paperwork carefully. Have the dealer walk you through the paperwork and explain each calculation or fee that is included on your financing contract. A bit of scrutiny here can save you a big headache in the future.

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