Car Financing

So you have finally found the perfect car for you and have negotiated a reasonable price out of the dealer and you take in a breath of relief. But you aren’t quite done yet. Did you know that if you finance a new car through the dealership, the finance person is working on commission? Fine, even if you did know that did you know this- those things that are added on to the car in the final stages of the deal like extended warranties, undercoating, alarm systems, etc. are often what the dealership makes the most money on? It is the finance-office person’s job to sell those items to you AFTER you have agreed on a price for the car with the dealer.

If you are like most people in this nation, paying cash up front to buy a new car just is not in the realm of possibility for you. And even if it is in your particular realm to do so, do you really want to deplete your entire savings account to purchase a new car? This means that you are either going to be leasing the car, or buying the car by financing it. If you plan on buying, then you will probably be financing it through the dealership, a bank or even a credit union. While leasing can be good for a lot of situations, it is a whole other situation than buying a car. If you know you want to finance your car rather than pay cash, then you need to do your homework (again!) and decide how you can get the best financing deal for you.

If you plan on financing through a dealership for your car consider these:

• It is convenient, fast and sometimes very competitive.
• Always be prepared for a big sales push on add-ons (alarm systems, extended warranties, etc.); loans are often front-loaded (payments are made up of more interest in the beginning of the loan than toward the end, so this is bad if you think you may be able to pay the loan off early.)

If you plan on financing through a bank or credit union think about this:

• Usually have competitive rates, personal service and definitely have no sales pitch for add-ons; can often tell you if you're paying too much for a car; often provide free life insurance or disability insurance with loans; loans are usually simple interest loans (interest spread evenly throughout the term of the loan).
• Not as quite as convenient as dealership financing – these finance options can’t be set up at night or on the weekend, but could be a very good choice if you have the time to wait for them to be made.

The interest rate you will get when financing a new or used car can vary quite a bit from the advertised rates that you always see on television or read in the newspaper. Your credit rating is the biggest influence on your interest rate. Your credit history and credit score will tell lenders a lot about your money situation. They often raise the interest rate if you tend to be a seen as a high-risk borrower. Another factor that affects your interest rate is the length of the loan you get for your vehicle. Typically, the shorter the loan, the lower the rate will be, but keep in mind that the shorter the term, the higher the payments will be.

Used cars almost always have a higher interest rate than new cars. The newer the car, the lower your rate will be (you may find an exception to this rule at some credit unions because some give the same interest rate for new and used cars alike).

When you finance through the dealership that you have purchased your car from, you have to remember that the finance and insurance department is often a bigger profit center than the sales department, as odd as that may seem at first. The business manager at the dealership (the person you deal with in the finance and insurance department) sends your credit information to the lender that they deal with. The business manager will usually then take the lowest approved interest rate and increase it. This mark-up on the interest rate is the dealership’s profit on the financing and unfortunately there is no law that says the dealer must reveal the mark-up he or she does on your rate. . This is why you have to keep your negotiating up to par on throughout the entire process! This financing is really just another product the dealership will try to sell to you, but going through another source, other than the lenders the dealership has, will really benefit you in the end.