How much can I afford?
It’s often tempting when shopping for a car to calculate a monthly payment by simply looking at the price of the vehicle, but this doesn’t take into account other factors that impact your monthly payments and what you’ll pay over the life of your loan.
Factors that impact your monthly and overall loan costs:
While you can negotiate many of these items with your lender or dealer, they still play a significant role in your loan terms and the overall cost of borrowing money.
Factors that may reduce your monthly and overall loan costs:
Your credit report and scores are some of the most important factors in determining the rates a lender will offer you for an auto loan. In general, the lower your credit score, the more likely you’ll receive a higher interest rate, which would cost you more over the life of your loan.
Every 12 months, you’re entitled to a free credit report from each of the three nationwide credit reporting companies – Equifax, Experian, and TransUnion. Before shopping, review your credit reports to spot and dispute any errors or inaccuracies that may be impacting your credit score and preventing you from getting the best interest rates possible.
Also, keep in mind that getting multiple credit checks from lenders can impact your credit score. While it’s important to get loan comparisons, keep these credit inquiries within 14 to 45 days of each other so they’re counted as only one inquiry. If you’re working through a dealer, they may reach out to roughly five potential lenders with your credit information, so you want to aim to keep the car-buying process to a few weeks.
Do I want or need a co-signer?
A co-signer is a person who would also sign onto your loan, contractually obligating them to pay it back if you’re unable to. If you have a limited or poor credit history, a co-signer with good or excellent credit could significantly lower your interest rate because the lender will use their credit history and score when calculating your rate.
Keep in mind that co-signing a loan can be a significant obligation. If you’re considering asking a parent, friend, or family member to co-sign, it’s important to have a conversation beforehand about what happens if you’re unable to make your payments.
How much is my trade-in worth?
If you have a car or vehicle you’ll be trading in, you can research its approximate value using a number of reputable third-party websites, including Consumer Reports, Edmunds, Kelley Blue Book and NADA Guides.
Once you know how much its worth, you can consider using it as a trade-in – where you and your dealer negotiate the value that will be credited to your purchase of another car – or sell it yourself and use the money as a down payment. Both options decrease the amount you’ll need to borrow, so your decision to do a trade-in vs. selling it yourself should depend on which option offers you the greatest savings.
Read more advice from the CFPB by visiting its website.
By making several important financial decisions before you shop for a car, you can ensure you’re getting the best interest rates and loan terms for your budget. Be sure to reach out to First Federal Bank about a new car loan. We’d love to help you drive away in new vehicle this year!