Smart tips for car financing

Smart tips for car financing

Experian’s quarterly “State of the Automotive Finance Market” is probably not on your reading list, but it does show some interesting trends if you’re looking to buy a car. 

Other aspects of the vehicle-buying experience may be flashier, but financing is certainly not something you want to relegate to the back seat. The right preparation can make a huge financial difference. Here are five tips to help you stay on track as you consider financing your next vehicle:  

Skip financing altogether. This may not be possible for most people, but it should still be an aspiration. According to Experian, buyers financed 86 percent of new vehicles and 55 percent of used vehicles sold last year. Remember, though, a large down payment can give you instant equity, shorten the term of your loan and save big money on interest. Unless you need to buy a vehicle right away, consider waiting until you have more cash to put down.

Do your homework. Before applying for a car loan, check your credit report and score. You don’t want to learn you’ve got credit issues by being rejected for auto financing. It pays to review your credit report for accuracy months before the purchase. According to Experian, “super prime” borrowers (who get the best deals) have credit scores of 781 to 850. 

Get your loan first. The majority of borrowers finance cars through the dealer. But if you are approved for a loan from your bank or credit union, you may have more flexibility in getting the best rate, negotiating the purchase price or being able to accept cash back in lieu of dealer financing. That’s why you should shop around for financing before visiting the dealership. Catch the right lender at the right time and you may get a better deal. 

Keep it short. Experian reports that loan terms are on the rise. The average new-car loan has increased to 67 months, and used-car loans have stretched to 63 months. The percentage of new-car loans with terms between 73 and 84 months climbed to 29 percent over the past year. Aim for a loan of five years or less (only 28 percent of borrowers hit this mark) and don’t play the “how big a payment can you afford per month?” game. Even I could afford the monthly payment on a Lamborghini if you gave me a 25-year loan ... well, maybe. The key is to get the best price and to pay off the loan as quickly as possible.  

Get the extras elsewhere. Or perhaps take a pass on them altogether. Usually a trip to the dealership finishes with a hard sell on everything from protection packages to extended warranties. If you truly need what they’re selling, you can probably buy it for less from a third party. For example, USAA actually sells extended warranties for vehicles.

J.J. Montanaro is a certified financial planner with USAA, The American Legion’s preferred provider of financial services. Submit questions for him online.

Looking for an auto loan? Make you’re ready by thinking about financing before you walk into the showroom. Check out what USAA has to offer: www.usaa.com/legionauto