What would come your mind if you come off a shopping trip with a nice new camera, and you heard a friend say that she bought the very thing last week for $40 less? Right then, you want to say that you would have done just as well if only you had known what it was worth. If it is a car you’re out shopping for though, there is no end of great and useful pricing information on the Internet that you could use to your advantage. Somehow, as much effort as people put into haggling the price down on a car, they are almost unaware of how they are buying another product too as they head in to buy a car – they are buying a car loan deal as well. And that’s where they go and cancel out the effort they put in into getting the best price on the car itself.
It’s pretty easy to see how this happens though; as much pricing information as you find on the Internet, there is next to nothing, comparatively, on car loan interest deals; and you’re caught in the same old trap – you don’t have the information you need to haggle the price (or the interest rate in this case) down. The dealers recognize this; and they’ll put their most ruthlessly competent employees in the car loan department. They’ll speak you with an air of finality, lie to you in a variety of ways, surround you with all kinds of misleading deal packages, interest rates and repayment schedules, and in general, flummox you into accepting whatever they want you to accept. And whatever interestr rate your credit score entitles you to, dealer financing departments will easily bump it up a percentage point or two and give you a barrage of reasons why they need to do that.
There are distinct tiers of risk that lenders will try to asseess you for. When you go to finance a car, the loan people look at your credit score, and try to plece you in one of several tiers of risk. The tier A or B people are the ones with the best credit scores; and they get the best rates – 6% or so, and even 0% on certain vehicles. The worst rates, 30% or so, go to the low-tier borrowers. What tier you get to claim depends mostly on what kind of credit score you can bring to the table. So your first step in demanding a good borrowing rate for car loan would be to research your credit score. While your credit report comes free, your FICO credit score usually costs around seven dollars. You need something close to 750 out of FICO’s 850 range to get the best rates.
If you do slightly worse and fall into tier B with a 680 score, you can still make the best rates if you put down a greater-than-average down payment (people usually pay about $2500 on average)and ask for a shorter loan period. If the car you bring in as a trade-in happens to still not be paid off, that’s no longer a big problem. The dealer will easily arrange to have the old balance rolled over into the new (though that’s a very expensive move).
Lots of people make the mistake of thinking about the loan only once they are at the dealer’s. A better way would be to have the loan all arranged for you before you set foot in the showroom. You can get this done at the bank, at an online lender such as Eloan or a credit union. With this under your belt, you can go speak to the dealer’s car loan department; you have a cast-iron case – you can just say that you have a deal with your credit union or bank; and if they can’t beat it, they can forget it.
Make sure that you don’t let your dealer get you all mixed up by calculating your trade-in value, the car’s sticker price and your financing deal all together. Keep everything separate. But what if he offers a cash rebate if you finance with him? Well, if you plan to keep the car at least three years, taking the cash could make a lot of sense.