You know you want it…that hot little number with the good gas mileage. But you are concerned that your credit report won’t allow the lowest rates so you can actually afford it. So what is the criteria for a loan for a new car or truck or used car or truck?
Vehicle loans are a dime a dozen…but not all are created equal. It is important to shop ahead of time for the best loan relationship you can possible forge. It used to be that you would simply go to a dealership, find the car you want, and “negotiate” the best deal with that dealership. BUT…when you ask the simple question…”what interest rate am I paying?”, you got the run around and a lot of double talk. Car dealerships do not want you to know what you are paying. They are totally focused on the monthly payment. Can you afford it or not?
Today, the prudent buyer does his research ahead of time. Find out the best interest rate and terms you can get from a loan source, THEN go to the dealership to find your vehicle. Then you are armed with good information before you start hearing about their financial deal. You can compare lender to lender, and make a good informed decision ahead of time, without the emotions that go with being at the dealership hanging around while they decide the best deal for you.
First, check out your local credit union. If you are in an area where one exists, and you can join, this is going to be your best scenario. Credit unions usually offer vehicle loans at up to 1% lower than a traditional loan source, so it is prudent to check them out. On a $10,000 loan, 1% adds up to a $500 saving on a 60 month term. If you do not have a local credit union, then by all means, find out what your local banker can do for you…especially if you have business accounts with him. Most of the time, either one of these sources will be far superior to the offers available at other sources…and especially that of the dealership.
Do your homework. Got to www.bankrate.com, www.kbb.com, and other sites where you can compare the latest information on rates and terms for new and used cars. That way, you are better armed to talk with the dealership and compare the deal they are offering to what you can bring to the table.
Doing your pricing homework is also a critical issue, no matter whether you are purchasing new or used. Finding out what the values are for the vehicles you are considering takes a little work. But you may want to consider the difference in price between a brand new vehicle and a late model vehicle. You know you lose roughly 30% of the value of the car the minute you drive it off the car dealers lot. For instance, the normal time for new cars to be introduced into the marketplace is September. So in August, good deals can be made for the previous model year. The same holds true about the last week of December, just before the new year turns. Dealerships must pay taxes on inventory that exists on January 1st, so they usually have lots of good deals to offer.
When you begin looking for that best price scenario, be sure that you have taken into account all the accessories and standard features so you are comparing cars that are alike. Since car dealers usually bundle certain features together, and you can’t get them separately, a bundle can make a difference of several thousand dollars in the cost. For instance, if you want leather seats instead of cloth, you also have to accept paying for the other upgrades in that bundle, which could include power seats, heated seats, moonroof, etc. So considering purchasing the previous model year right at the end of the year can save you thousands.
Let’s talk about what your credit score needs to look like. First, you score must be 640 or better to get a financed deal and not have to pay cash. At 640, your interest rate will be about 14% minimum. Depending on that score, you may have to pay the exhorbitant fees associated with purchasing a vehicle from a private lot where the owner does his own financing…upwards of 30%. Contrast that with the person who has a 720 or better credit score average. That person can be offered zero percent interest, usually with a substantial down payment. But consider the difference between 14% and 0% interest on a 60 month purchase of $30,000 with $3,000 down. $27,000 loan, 60 month term, 14% interest. Monthly payment is $628.24. You will pay a total of $40,694.57 in payments over 60 months, which is $12,694.57 in interest. The same $27,000 loan, 60 month term, 0% interest is $450.00 per month, and no interest is paid. That is a substantial saving!
It is worth it to take the time to improve your credit score before deciding to purchase a new or used vehicle.