Most people go shopping for a new car and then consider their financing options. While this is the standard method it may not be your best option. Just like shopping for your new car, you need to carefully research your financing options and be prepared for it. Being prepared will ensure that you get the best possible solution and rates, thus saving you possibly thousands of dollars in interest over the term of your loan.
When it comes to financing, tiny differences can mean a lot to how much you pay. Consider a $20,000 loan for 5 years at 11% and 9% interest rates. At 11% your monthly payment will be $434.85 and you will pay a total of $5,879.70 in interest. However, at 9% your monthly payment will be $415.17 and you only pay $4,740.98 in interest. Over the term of your loan you will save more than a $1,000 by getting a 2% break in your interest rate. For this reason it makes sense for you to research your financing options before finding a vehicle you wish to purchase.
The first step to researching your financing options is to examine your credit file and score. One in four credit reports contains information that is wrong and could result in you paying a higher interest rate than you should or perhaps even being denied your loan. Another important aspect of your credit file is your FICO score. This score will determine the interest rate the lenders will give you. It is important to know what interest rate is fair for you to be paying for two reasons. First it will allow you to know when you are getting a good deal thus making the negotiating process easier for you. Second, it will help you to make sure the lenders are being fair and honest. It is not uncommon for lenders to misrepresent your actual credit score or to add a few percent to your loan in order to increase their profits.
Just as different cars have different features, different lending companies have different options too. Banks generally offer the best rates and terms for loans but sometimes third party lenders can be a better choice. You may find more favorite interest rates from an online lender who has less over head than a storefront business. You may be able to get other financial products from a third party lender at the same time that are of value to you.
The process of shopping for a new car should be your model for how to shop for a financing solution. Take the time to consider your situation and the services that various lenders will provide before you settle on a vehicle. You may even find it prudent to have secured your loan before your even go out to look at vehicles.