You’ve had your fun test-driving different models, choosing your favorite performers and filling out your personal checklist of must-have features on your next car. Now comes the not-so-fun part—figuring out how to pay for it all.
If you’ve budgeted carefully, you’ve already chosen a new or used vehicle within a reasonable price range. But getting the best possible deal on that particular car means going a step further: evaluating your payment options. The way you pay could save—or cost—you thousands of dollars.
In a perfect world, pay cash.
Ideally, you could walk into a dealership and write a big check for the whole enchilada. No monthly payments. No interest charges. No worries.
Even if you’re not wealthy, paying cash might be possible if you’ve saved in advance, or if you’re buying an inexpensive car and your current vehicle has a high resale value. The fact is, however, that the vast majority of consumers need a loan to purchase a car.
That’s not necessarily a bad thing: an auto loan can help you build credit and allow you to put more cash toward savings. But finding the best financing deal does make the purchase process a bit trickier.
Shop around for the best loan.
Dealerships are all too eager to guide you from their sales floor to their financing guy in the back room who will walk you through the terms of your loan. Many consumers assume it’s a standard part of the car-buying process; they don’t realize they have a choice. The truth is, you can bargain hunt for financing.
In some cases, it makes sense to finance through dealers if they’re offering a big cash rebate or a super-low interest rate. But there are plenty of other places to get an auto loan, and you can often find a better deal through your regular bank or an online lender. Not only can you use USAA Auto CircleTM to find a new or used car, but also you can apply for an auto loan with USAA Bank.
Get pre-approved to minimize haggling.
Getting pre-approved for an auto loan through an independent lender has an added benefit: simpler negotiations. When you finance through the dealer, the salesperson may offer an attractive price on the car, but attempt to recoup the dealer’s profit by inflating the terms of the loan.
Trying to keep it all-straight can be stressful and confusing. When you enter the dealership with a loan already in place, you essentially become a cash buyer, and can focus only on negotiating the price of the car.
Recognize a good deal.
As you’re shopping for a loan, look at a combination of several main factors to find the best deal for your budget.
Interest rate: A low annual percentage rate (APR) can keep your monthly payments lower and ultimately save you a bundle on the total cost of your car. How much difference can it make? If you finance $25,000 over 48 months at 3 percent APR, you’ll pay $1,561 in interest. But bump that interest rate up to 6 percent, and your interest charges jump to $3,182 over four years. You can use USAA’s auto loan calculator to see how different interest rates and loan term lengths affect your monthly car payments. Some dealers offer enticing incentives like 0.0 percent financing, but keep in mind those rates may only be offered to people with a flawless credit history. Also, keep in mind you may be better off taking the cash rebate offer instead of the financing. checking your credit score before you start-comparing loans can help you know what to expect. For a fee, you can get your score from AnnualCreditReport.com or other similar sites. And if your FICO score is less than stellar (below 720) it might be worth it to build it back up by managing debt responsibly for another year, before taking out an auto loan.
