If you want to save money on your new car purchase, you’re going to have to do a lot more than just striking a great deal with the salesman. A few small mistakes on your car loan could cost you a lot more money in the future, essentially erasing the savings you created during the negotiation process.
The following decisions when applying for a car loan can potentially save you thousands over the life of the loan.
1. Focus on the Purchase Price
Buying a car solely based on the monthly payments is often a trap and is a well-documented strategy car salesmen will use. Although you may be able to afford this monthly payment, don’t let the sales staff know how much you can afford each month. By doing so, it will tell the dealer how much they can add onto your purchase price to reach that monthly payment. Instead, let them know how much you can afford when buying the car by negotiating the purchase price, not the monthly payments. If you turn into a monthly payment buyer, then they will make sure you’re going to be paying that amount.
2. Check Your Credit Score Ahead of Time
Your creditworthiness will almost always determine your interest rate. Before you go to a dealer, either check online or visit your local bank to see what kind of car loan you may be able to get. Most of the time, unless you’re able to score zero percent financing through the manufacturer, you will be able to score a much better deal by doing the research on your own rather than using the dealer’s limited financing options.
3. Car Rebates vs. Low-Interest Loan
Unless you’re going to buy a new car with cash, you’re going to be presented with two options when buying new: You can either apply a rebate toward the purchase price, or you can take advantage of a lower-than-average interest rate loan.
Since you can gather this information ahead of time on the car dealer’s website, it’s best to do your homework to see which option will save you the most money. For example, if a dealer is offering 84 month car loan rates options or a $2,000 cash back option with a higher interest rate loan, then it’s best to calculate to see if the lower interest rate loan will save you $2,000 or more when compared to the rebates.
4. Just Say No
According to a 2015 National Automobile Dealers Association report, close to 37 percent of the gross profits earned were generated in the finance and insurance department. This included extended warranties and add-ons such as fabric protection.
While the dealership may put on a good show while presenting these options, these add-on items are often available for a cheaper price outside of the dealership. If you know you want these particular items when purchasing your car, it’s best to do your research like you would with a car loan. As you can see, research is extremely important when applying for a new car loan. Being prepared will hopefully allow you to avoid a higher interest rate loan and unnecessary add-ons.