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Car Financing
One of the most important components of the car deal you
get is the financing that goes with it. Many otherwise wise consumers have negotiated an excellent deal when buying
a car, only to give back a good deal of the money they saved when it comes time to finance the car. Perhaps it
was because they let their guard down, or perhaps it was due to a lack of information, but it can be disheartening
to find out that you made a great deal on the car and a lousy deal on the car financing.
With the competitive sales market making it more and more difficult for dealers to make a large profit on the vehicle
sale, they have come very adept at squeezing every dime out of the finance profit. They hire consultants and send
their finance managers to specialized training sessions, all with the intent of maximizing the gross profit potential
in the finance office. Be aware that when the car sale is done, the "selling" is definitely not
over!
Just like preparing yourself for the purchase of the vehicle is extremely important in determining the kind of
deal you get, preparing for the financing of the car is equally important. It is highly recommended that you do
your homework before you do your actual car shopping. Check your credit in
advance so that you can eliminate any errors or discrepancies as quickly as possible. Compare rates and the various
plans that are available so that you will be ready to move should you find an exceptional deal on the car.
SOURCES OF FINANCING
Local Banks: The advantage here is that you may have a personal relationship with the banker. You finance
locally and you make your payments locally. Whether this converts to a better financing rate needs to be investigated.
The Internet: The Internet makes it easy to compare and apply for car loans. A
source that generally has interest rates below the national average is Capital One Auto Finance.
They have a simple online application and quick loan decsions.
Your financing is approved and in hand before you even visit the dealership, which will strengthen your bargaining
position.
Credit Unions:
There may be a savings here in the rate, but many consumers would rather leave their line of credit there open
in case of a special need or emergency, rather than tying it up by financing a car.
Home Equity Loans:
ave become a popular way to finance a car in recent years. The advantage is the possible tax deductibility of the
interest paid on such a loan. To get comparisons of home equity loans, visit Quicken Loans
. Note: The IRS will only allow you to deduct interest on a loan amount that does not exceed the value of your
home, for good reason. Borrowing in excess of your home's value is not recommended.
The Dealer:
The one advantage here is convenience. You buy the car there and you finance the car there. Be aware, though, that
the finance department is a source of revenue to the car dealership. The difference between the rate at which you
finance the car and the rate the dealership is able to secure the financing for is their profit, which can be substantial.
This is why it is so important to compare your available financing options before you visit dealerships.
FINANCING TERMS
The number of months that you can finance a car for will largely be determined
by its age. New cars can be financed, in general, up to 72 months (although 60 months is the most common term).
The terms on used car financing will be shorter if the vehicle is older. For example, you may be able to finance
a 1997 model for 48 or 54 months (depending on the bank's policies) but you may only be able to finance a 1995
model for 36 months. You need to make a comparison here, since it is conceivable that the monthly payment (because
of the shorter term) could be more on an older car than it is on a newer one.
The most important thing that you can do is to compare when financing a car. You then must weigh the advantages and disadvantages of
a specific financing source and term to see which is the most advantageous for you.
CAR FINANCING HINTS
Don't "bury" yourself by overbuying. Remember: It's only a car. It won't make you smarter, better looking or richer. In fact,
if you overbuy, a hefty car payment will rapidly begin to affect your life in a negative way. Because cars are
a depreciating "asset," being conservative is almost always to your advantage.
Compare and then compare again.
Get a quote from your personal bank, another local bank, a credit union if you have one and Internet sources such
as Capital One. The more comparisons
you have at your disposal, the better the chances that you will save money!
Keep your eye on the dealer.
If and when you get a quote from the dealer, be aware that the payment will likely be "packed" with an
interest rate that gives them a profit on the financing and usually will be quoted including credit insurances
such as life and disability insurances. Be wary!
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