Financing a car can be done in many ways but the most common way is to let the dealer do it.  Keep in mind, though, convenience will cost you. The dealer will make a profit if he finds you financing. Don’t fall for the zero percent because there is no free money out there. The dealer is there to make money not to do you any favors.

The dealer will charge you full price and may extend the term to 72 months or beyond to make the payment where you want it. The best way to buy a car is to just mention that you are paying cash. It does not mean that you are not getting a loan but the dealer is getting cash. This allows you to focus on getting a good deal and know exactly what you spending.

Resist the temptation to lease

Leasing is basically an extended car rental. It will cost you more in the long run.

Consider certified pre-owned cars

A certified pre-owned car is one that has been inspected and fixed before it goes on the market, and comes with a manufacturers warranty, like new cars do.

When determining how much to borrow, focus on the payment but also on the interest cost and the fact that the value of the car will almost always go down. If you’re considering a home-equity line of credit (HELOC) to pay for your car, remember that most home equity lines of credit have a variable interest rate, so it’s possible your payments will rise over time. I recommend that you have a plan to pay it off in less than 3 years.

Other sources of a loan

You’re going to show up at the dealer with your own loan, but where should that loan come from? Begin by getting a sense of the prevailing rate for a new-car loan and focus on the APR. The APR is the annual cost of the loan, or interest rate. You’ll probably get the best deal at a credit union— a members-only, nonprofit bank that can offer lower-cost loans than a traditional bank can. However, you should check out rates at traditional banks also.

That’s why splitting up the financing and purchasing of your car is a good idea. First, you can shop around for the best credit-union car loan, and then you go to the dealer and focus on negotiating the purchase price of the car.

Shop early in the week

Timing can be everything. Weekends are prime time for dealers so if you show up on a Monday, a salesman may be more motivated to cut a deal because business will be slow for the next few days. Make sure he does not let you take the car home to check it out because 80% of all cars are purchase on impulse.

Shop at the end of the month

Car dealers get monthly bonuses if they move enough metal. If you show up on the 30th and your salesperson is two cars short of a bonus, he or she may cut you a better deal so he can make numbers.

Shop for a car that’s about to be replaced or discontinued

There is pretty simple logic here. Things that are about to be considered “old” sell for less. If you’re looking at a 2010 Honda Accord and the 2011s are about to arrive at the dealer, you usually can get a bargain.

Don’t forget to see how an auto loan will effect home financing

If you are planning to buy a home or refinance during your loan term, make sure you speak with a loan specialist like myself first. Car loan payments are the number one killer of home loans. For example, lets say you are earning $2500/month and you are looking to purchase a home. If you have no debt you could qualify to buy a $180,000 home. If you had a $400 car payment then you will qualify for only a $110,000 home due to that car payment. That, my friends, is a HUGE difference.

Jay A. Kumar

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