Getting a Car Loan

If you re like most car shoppers, you plan to get a loan to pay for your car. Here are some tips to help you when you re looking for a car loan:

• Shop for loans before you head to the dealership. You may want to get pre-approved for a loan before you head to the dealership. That way, you ll have a better idea of what kinds of cars you can afford.

• Look for the lowest rate. Shop around for the lowest annual percentage rate (APR) and compare rates offered by the dealer, banks, credit unions, and savings and loan institutions.

• Compare loans. Ask different lenders for information about the same loan amount, loan term and type of loan. Also, ask for a list of all costs and fees. Keep in mind that your monthly car payment will be determined not only by the interest rate, but also by the amount of your down payment and the length of the loan.

• Determine overall cost. Monthly payments on a long-term loan will be lower than the payments on a short-term loan. However, the overall cost of the long-term loan will be greater and your equity in the car will build more slowly. Pay attention to how much the financing will cost you in the end, not just the interest rate or monthly payment amount.

• Weigh your options. Vehicle manufacturers sometime offer incentives for the purchase of certain models. Buyers who want one of these cars usually get to choose: a cash-back rebate, or a loan with a very low interest rate (APR). Keep in mind that you may be able to save money in the long run if you take the rebate, apply it to your down payment, and then finance your vehicle through a bank or a credit union. Use an online calculator to help you determine whether you d be better off with a rebate or a lower rate.

• Know the deal with dealer financing. Be aware that if the dealer is arranging financing, they are probably making a profit from it. Sometimes the dealer can obtain the best terms for you, but do not take their word for it. Shop around to ensure that you re getting the best deal.

• Know what the car is worth. Your personal bank or credit union may be a good trusted resource for advising you on the value of a prospective vehicle before you sign any document.

Also, watch out for scams. One common scam is called the Yo-Yo. A few days or weeks after the car is purchased, the unscrupulous car dealer calls the buyer back to the lot. He claims that the loan financing has fallen through, and the buyer will need to pay more cash or get a loan with a higher interest rate. Some dealers may also try to keep the buyeR&Rsquo;s down payment. However, the buyer has a legal right to request that the original deal be unwound if the financing falls through, and that all of their money be refunded.

Another tactic involves loading up the loan financing contract with expensive options. These include theft deterrent systems, vehicle service contracts, extended warranties, extra insurance to cover loan payments if the vehicle is involved in an accident, and even credit life insurance and disability insurance policies for the buyer. These unnecessary items can cost buyers a lot of money over the life of their loan.