Many aspects of buying a car are fun and exciting. Along with the enjoyment, though, comes the responsibility of financing your car and figuring out what loans are right for you. Buying a car is an important, long-term commitment, and you want to avoid missteps that can cost you extra.
Here are 5 common questions to ask when buying a car:
- How do I know how much I can afford?
Being able to make your payments on time without sacrificing your basic needs is important. Make that your starting point. Spend time on your budget and look at your overall income against expenditures; also factor in what you will pay for gas, scheduled maintenance, cost for annual registration and insurance. After looking at all those costs, you should determine how big of a down payment you can make and what kind of car you can afford.
- How long should my loan last?
The average car loan is five or six years, according to Edmunds.com1, which means 60-month or 72-month “terms.” Be aware that the longer your loan lasts, the more you could be paying in interest charges. In some cases, you may be able to get a zero-interest loan from the dealer, but that would be for a shorter period, typically about three years. While your monthly outlay is greater in those cases with shorter terms, your overall cost could be less. Consider your options when financing a car and look for the shortest loan terms that you can afford.
- What interest rate would I be charged?
In addition to the type and the term of the loan you choose, your credit score can have some effect on the interest rates offered or whether you would qualify for financing from the lender. The rates advertised are often “as good as” rates that are available to those with the best credit scores. So you should check your credit score before you begin looking for financing options. See all the factors that affect your interest rate in this article.
- Where should I finance my car?
Dealerships may offer great deals on financing a car, but those rates are often reserved for buyers with a high credit score. You should also have financing secured before you start to shop. Having a preapproved loan before you walk into the dealership can give you an idea of exactly what you can afford and give you a peace of mind that you are already approved for the loan. It can also eliminate the time and hassle of negotiating for financing. Check with your community bank or online banking options such as the one from Nationwide to see what kind of interest rates it offers.
- Where should I buy my car?
As a consumer, you have a lot of options to buy everything – including where to buy your car. If you are only considering a brand new car, you have only dealerships as your option. But if you consider purchasing a pre-owned car, buying from a private seller could be a great option. See our helpful tips on how to buy from a private seller.
Buying a car can be a positive experience. Be sure you do your car financing homework in advance so you know what kind of terms you can afford and when you should walk away and keep shopping.