Buying A Car? Get Your Financing First

by JT on September 1, 2008

Buying a car can be an easier and more pleasant experience when you’ve got your financial ducks in a row.

buying a car, financing a car
Photo by Ben McLeod

With the cost of gas increasing, and with more consumers needing to save on their gas mileage and driving expenses, many people are trading in their gas guzzlers for something more affordable and efficient. Many of them are turning to more fuel efficient cars.

If you’re in the market for a new vehicle, you can make the shopping process move along more smoothly by carefully planning your car purchase. You can begin by creating a short list of vehicles that you’re serious about buying, and by determining your budget limits for your purchase. Additionally, you can take your preparations a step further by lining up the necessary financing you need for your purchase before even stepping foot into the car lot. By having the financing ready, you’ll know beforehand what you can afford, thereby making negotiations easier.

There are several places you can find financing for your vehicle. Keep in mind, it is often less expensive to finance a brand new vehicle than it is to finance a used one. New car financing also generally offers lower interest rates and longer repayment terms.

Dealer or Manufacturer Financing

Typically this type of financing will cost more than other kinds of financing. Even the zero percent financing deals will be more expensive because the dealers often increase the price of the vehicle to recoup the costs of the financing. To get the best deal, negotiate the price of the vehicle as if you were going to pay cash for it. Once you have set a price, ask the dealer if he can compete with the terms of the loan you have already secured from an outside source.

Home Equity Financing

If you’re eligible to take out a home equity loan, be extremely cautious. Don’t put your home in jeopardy to get a car. If you’re certain that this is the option that’s right for you, you’ll find that this option may offer you a pretty good interest rate. Consequently, your payments will be tax deductible. But be well aware that by borrowing against your house, you’re putting your home at risk; so only consider this scenario if you’re very confident about retiring your loan quickly.

Banks and Credit Unions

If your finances are in good standing, both banks and credit unions will be able to offer you loan approvals before you even approach a car dealer. It’s likely that these financial institutions will be able to offer you the lowest interest rates compared with what’s offered anywhere else, with credit unions’ interest rates often being lower than bank rates.

Online Financing

There are more and more online companies offering financing deals that can be negotiated and secured entirely online. Many are able to provide great rates and repayment terms, and can secure you the loans you need very quickly. Loan checks are often available in a matter of a few days, which makes this a very convenient option to take.

Wherever you get financing, just make sure your monthly payments are within your budget and that the vehicle you ultimately choose is gas-efficient and low maintenance. By going to the dealership well-informed, you’ll avoid a lot of hassle and save yourself a lot of money as well.

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{ 1 comment… read it below or add one }

1 David January 18, 2009 at 2:14 pm

Getting financing first is a great idea. I went through my credit union and got a great deal.

I would also add that you should not tell the dealer you have financing until AFTER you’ve negotiated the price.

Most dealers will be flexible about the price because they can make money off the loan. So if you negoiate the price first then provide your own financing, you’ll get a better deal than you would’ve otherwise.

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