The world of car sales is a world of blurred price points and sometimes blurred morals. The cliché idea of a car salesman is a loud, fast-talking swindler who wants to take your money and send you on your way. Before you apply for a car loan, you should know how to handle yourself in order to get the best possible price on your car.
To avoid getting persuaded to buy something that’s more expensive than what you can afford, set an absolute price limit. How much of a down payment can you offer? To get a rough idea of what your loan might look like, subtract the down payment amount from your price, then calculate monthly loan payments over however many years you feel comfortable (3-5 is standard), at an average interest rate of 5%.
If you walk into a car dealership without a clear idea of what you’re looking for, you’re asking for trouble. Salespeople are great at convincing you that one particular car is going to make all your dreams come true and that if you don’t buy it right now, it will disappear forever. Do some research online at home. Come up with a few options of cars that you’re interested in. Look up the Kelley Blue Book and the NADA values of those cars, and don’t pay more than those prices.
Before you even consider taking out a car loan, you should be able to get yourself a lower price on the car you want. Shop around. Go to at least 5 dealerships. Tell each dealer what the others have offered you. Take advantage of their desperation instead of letting them take advantage of yours. Tell them that you’re not in any rush and are just looking to see where you can get the best price.
If your credit rating is bad or you are young and haven’t established much credit, you may have trouble getting a loan without a co-signer. If you have a family member or friend with good credit, ask them if they might co-sign for you in case you need it. If not, prepare for exorbitantly high-interest rates and recalculate your budget accordingly.
Once you account for tax and small service fees, you could be looking at an extra $1000 on your car loan. Be aware of this before you sit down to sign papers, and factor that into your budget. Sales tax on a car can be around 8%, so if you’re buying a car for $15,000, you’ll be paying another $1200 in sales tax.
When you apply for a car loan, your car becomes collateral. If you can’t make your payments, you will lose your car, so try to avoid spending more than you can afford at all costs (pun intended).