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As the cost of owning a new vehicle increases, it's more important than ever to consider the cost of a car loan and look for the best interest rate.
The average interest rate of new car loans reached 5.5% in 2018, up about a percentage point from the previous year, according to Ben Bartosch, head of the 39, predictive analysis at JD Power. Meanwhile, the price of buying a new car is averaging $ 33,000, he said. This means that a buyer will pay thousands of dollars in interest on a 60-month loan.
Indeed, many car owners say they feel stressed by their debt. A recent Harris Poll poll of 2,000 Americans for Fair Trade, which provides cars each month for a lump sum, found that 47% of people who took out a car loan say that it took away some of their tranquility d & # 39; mind.
With the changing lending market, anyone looking to buy a car or refinance a loan needs smart strategies. Here are five items that, according to financial experts and the auto industry, will help you get financing tailored to your budget.
1. CHECK YOUR CREDIT
If you do not know your credit score, you do not know what interest rate you may be entitled to. Plus, if you find a problem in your credit report, you can resolve it before you get into the buying process. And, if you already have a loan, you may be able to refinance at a lower rate and payment if your credit is stronger than when you started the loan.
Your credit score is available for free on many personal finance websites, banks and credit card issuers. And you can use AnnualCreditReport.com to request free credit reports to which you are entitled every 12 months from the three major credit bureaus.
2. SHOP AT THE BEST PRICE
The process of buying loans should start well before the process of buying a car, says Bartosch. Calling or submitting applications online could save you hundreds of dollars.
"Most people just think of going to a dealer to get a loan," says Sonia Steinway, President of Outside Financial Car Loan Company. But, "there is a whole world of options at their disposal." She says that credit unions offer some of the lowest rates and the best customer service.
To compare loan offers, keep the same conditions:
-VALUE OF THE LOAN. In addition to the negotiated purchase price of the car, the sales tax and fees will increase the amount you will need to borrow.
-ADVANCE PAYMENT. The more you save, the less you need to borrow, which allows you to save interest – and this could help you benefit from a better rate.
-TERM OF THE LOAN. Experts recommend loans of 60 months for new cars and 36 months for used cars.
3. Design a loan that you can afford
Once you know the interest rate you qualify for, use an auto loan calculator to estimate your monthly payment. Try not to spend more than 10% of your net pay on the repayment of your loan and less than 20% of the total car expenses, which also includes gasoline, insurance, repairs and l & # 39; maintenance.
If you refinance, extending the term of your loan can reduce your monthly payment, but you can pay more interest in general. Use an auto loan refinance calculator to see if you will save money by refinancing.
4. PRE-APPROVED FOR A CAR LOAN
Pre-approval can help you get the most competitive rate. Michael Bradley, Internet Sales Manager at Selman Chevrolet in Orange, Calif., Encourages buyers to seek financing before they arrive at the dealership and then ask the dealer to beat their rate.
Recently, Bradley has seen more and more clients make pre-approved loans from credit unions, but others, he says, are expecting a 0% financing from auto loan companies. These loans are no longer offered as frequently as in the past, he says. "So when they arrive, people jump on them." Search the website of an automaker for information on low interest rate financing offers and other incentives.
5. REVISE THE CONTRACT CAREFULLY
Although the loan agreement is long and the verbiage is dense, it is important to read it carefully before signing it. Check the numbers with the help of a loan calculator. Errors – sometimes intentional – occur, says Oren Weintraub, president of the Concierge Service for the purchase of Auto Authority cars in Tarzana, California, who reviews customer contracts.
If the numbers do not match, make sure the lender has not slipped additional items that you do not want, such as an extended warranty or gap insurance. And ask about any additional fees that were not reported to you at the start or that other lenders do not charge.
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This article was provided to The Associated Press by the NerdWallet Personal Finance website. Philip Reed is a writer at NerdWallet. Email: [email protected].
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