How to Finance a New Car Purchase

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When you walk to most car dealerships, the chances are there will be a salesperson who will approach you and ask you how you plan to buy a new car. When this happens, you can simply explain that you intend on paying for a new car with cash. Just because you say this does not mean that you have bricks of money on you. All this means is that you do not intend on getting manufacturer or dealer financing.

Dealer financing might be a good deal, but only if you have perfect or near perfect credit. However, it is important to note that better deals can often be found at credit unions and banks.

When you decide to tell the dealer that you do not want their financing, then they will not be able to make extra profit by padding the deal. They make money by slipping different types of fees and charges into your financing. This practice is known as upcharging. If you want to focus on the features and the purchase price of the vehicle that you want, then it is a great idea to forgo dealer financing.

After you decline dealer or manufacturer financing, the next thing you will need to do is negotiate the price of the car that you are interested in. Some tips to keep in mind are as followed:

Don’t Lease

The best way to describe what leasing is, is that it is almost like renting a car, except for a longer period of time. If you lease a car, then you need to return it when the lease is up, or you will need to purchase it at whatever the agreed price was on. Usually the price will be higher than what you would pay for a used car that is the same make and model, or similar. If you decide to take a loan out, then you pay the loan down, and then you will own the car once the loan is completely paid off. Repairs, insurance and gas will be the only payments left to make on the car.

A Lot Of People Do Lease

Leasing a car is not a bad thing to do, and a lot of respectable, as well as smart people do lease vehicles. However, it is not exactly the greatest way to keep a car, because you will find yourself making payments on a consistent basis. If you end up leasing a car for three or four years, then you will need to get a new lease or pay a lot of money to purchase the car that you were leasing out.

Consider Pre-Owned Cars That Are Certified

These types of cars are used cars, but they do come with assurances relating to the condition of the car. It is often a smart move to but a pre-owned vehicle, because everyone knows that within the first year most cars lose around 18% of their value. Before a pre-owned vehicle can be sold on the market, it needs to be fixed up and inspected. Just like most new cars, a pre-owned one will come with a manufacturer’s warranty.

Think About Your Car Loan

After you have made the decision as to which car you want, you should figure out the amount of money you can afford. Don’t let the car dealership try to convince you on the amount of money you can afford.

How Big Of A Loan To Get Is Important To Know

Figure out what your disposable income is, and try to get your monthly car payment represent no more than 20% of your disposable income. This amount should cover not only your car payment, but also your insurance and fuel costs.

Figure Out How Long You Should Give Yourself To Pay The Loan Back

Everyone knows that the more time you have to pay a loan back, the lower the payment will be per month. However, interest payments can end up over the years when the loan is stretched out for a long time. In some cases you could end up paying thousands of dollars in interest by the time your loan has finally been paid off. For example, if after 04r years you have paid off a $20,000 car loan at 5%, then your payment will be $460.59, and the interest will be a little more than $2,100.

If you borrow the money over 10 years, your monthly payment will only be $211.12, but at the end of 10 years, you’ll have paid $5,455.72 in interest.

Keep your loan term to five years or less (three is ideal) and you should be in good shape. If the monthly payments are too much even at five years, the car you’re looking to buy is probably too expensive.

Consider All Avenues Of Cash.

Is it a good idea to pay for a car by selling investments instead of borrowing money at 7%? This may seem hard to answer, but it is probably a no. That’s a tough call; usually, we’d say no. Do not spend any of your tax-sheltered retirement savings (IRAs, 401(k)s), as you’ll pay through the nose in penalties and taxes and rob from your future. As for taxable investments, consider whether cashing out would have tax implications (you’ll pay 15% in capital gains for investments held longer than one year; investments held less than a year are taxed at your ordinary income-tax rate) or whether you may need that money for something else over the next two to three years.

Should you take out a home equity loan to pay for a car, since the interest of those loans are tax-deductible?

Many people think home loans are the perfect way to finance the purchase of a new car. But the length of the term for a home loan — most require payments over at least 10 years, with penalties for early repayment — will send your total costs through the roof, even after the tax savings. Borrow for no more than five years, lease (if you must) for no more than three. If you’re considering a home-equity line of credit to pay for your car, remember that most HELOCs have a variable interest rate, so it’s possible your payments will rise over time.

Know Where To Get A Good Deal On A Loan

You’re going to show up at the dealer with your own loan, but where should that loan come from?
First of all, you should focus on each lender’s annual percentage rate, as this is the annual cost of the loan, which is the interest rate.

Begin by getting a sense of the prevailing rate for a new-car loan. Focus on is the APR, or annual percentage rate offered by each lender. The APR is the annual cost of the loan, or interest rate. With this number, you can cross-compare loans from one lender to another, so long as the durations of the loans are the same.

You will probably get a great deal, if not the best one, at a credit union. However, don’t neglect traditional banks or even online lenders.

Don’t Get Distracted
Also, try not to get distracted by rebates that are offered be dealerships. This is a tactic to try to get you to get a loan through them. The chances are you will end up with a rather high car payment. If you do get dealer financing your new truck or car, or finance for imported vehicles, then make sure to pay close attention to what you are signing. It is quite common for dealers to add fees that don’t need to be added in the first place, and this includes fees for rustproofing and extended warranties. You should also not be afraid to walk away from a deal if it does not seem right.

Timing Is Everything

Timing is everything when it comes to trying to negotiate the price of your new car with your dealer.

Shop early in the week is a great time to shop. Dealers are busy on weekends, so some salespeople may not be as eager to make great deals on the weekends as they would be on a Monday or Tuesday.

Shop at the end of the month is good too. Some dealers give monthly bonuses to salespeople who sell the most cars, so try to show up on the last day or two of the month, because a salesperson may be more motivated to cut you a good deal.

Look For A Car That Will Be Discontinued Or Replaced
If a car is going to be replaced or discontinued soon, then the chances are it will sell for less. For example, if you are after a 2008 Honda Accord, and the dealer is about to get the 2009 model, then you will likely be able to get a few dollars knocked off of the total asking price of the 2008 model.

 

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Phillip worked as a Sales Tax Inspector and Administration Manager before commencing in the Finance Industry in 1988

Initially working in the Motor Vehicle Finance area, which included the award “AIM Insurance, NSW Business Manager of Year 2000”, then encompassing Home Loans and General Asset Finance to his portfolio, which included Equipment, Machinery & Equipment Finance.

In early 2007 he commenced as General Manager of an online Asset Finance Brokerage business, building it up to be one of the Australia’s largest and most successful. In this position he also designed, set up and oversaw the implementation of a Motor Vehicle Fleet Management department.

On leaving in December 2011, he returned to his own business as a Management Consultant to another of Australia’s large online Finance Brokerage businesses, focusing on improving client relationships and staff training.

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