Car Finance: How To Buy An Auto

Car dealership in Rockville, Maryland (Courtes...

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Top Tips For Buying An Auto on Finance

I generally put the tips at the end of my pages, but in this case I’ll start straight off with them, in case you’re in a hurry and can’t be bothered to read my top tips for buying an auto on finance all the way through. I know, I know, you’re busy!

Top Car Buying Tip #1 – in most cases you’ll get a better finance deal to buy your new motor from a financial institution than you will from the car dealer . . . if you don’t read any further, remember this important piece of advice.

Top Car Buying Tip #2 – long-term auto loans might seem like a tempting way to keep the monthlies down, but you’ll end up paying much more for your car in the long-run because of the interest.  Ideally you should be looking at a 3 or maximum of 5 year term for your auto loan.

Top Car Buying Tip #3 – try to keep your monthly car payment to a maximum of 20% of your disposable income. Don’t only think about the actual loan payment for buying the auto, but also include things like fuel and insurance costs. I know you’ll probably be tempted to go higher, but if you overstretch your budget you can end up in real trouble and could even lose your new car and destroy your credit rating in one fell swoop.

How To Buy An Auto Using Car Finance

If you’ve got this far then well done, you’re obviously serious about finding out the best way to buy an auto on finance and saving yourself lots of potential trouble, as well as a pocketful of cash.

The first thing you’ll notice when you walk into a car dealership, is that the salesperson will very soon ask the question “how you gonna’ pay for the car?” . . . I know, they’re trained to jump straight in there*. It is vitally important to push their plug in immediately with the reply “cash”. Don’t worry at this stage that they’ll expect you to have a brown envelope stuffed with notes in your jacket pocket, but you’re just making it clear that you’re not interested in any of the dealer finance options they have available. Dealer finance options are rarely the best deal for you, in most cases you’re much better off securing car finance with a credit union or your bank.

* I apologize if I’ve offended any car sales personnel, but you know what I’m saying makes perfect sense when the shoe is on the other foot and you’re not trying to increase your commission payments.

Car dealers make money by selling cars (obviously), but also they find ways to slip extra fees and charges onto the finance package, and putting them straight right at the beginning of your negotiations gives you the chance to focus on what’s really important, the price of the car instead of the price of the monthly payments.

Choosing Your Car

Car finance isn’t only available for brand new cars, cars which are “certified pre-owned” can often offer a much better deal. When you think that many brand new cars lose around 18% of their value when you take them out of the showroom, at least within the first 12 months of their life, then going pre-owned can be a very cost effective decision indeed. Certified pre-owned cars are inspected before they are sold, and are available with manufacturer warranties just like new cars . . . they’re just that little bit cheaper. 

Actually, I’ve got a bit ahead of myself here, because before you can make any decision about buying a new (to you) car, you need to find out just exactly how much you can afford for your monthly car loan payment. As I’ve already mentioned in the Top Tips, this shouldn’t really be any more than 20% of your disposable income.

Sourcing Auto Finance

You will probably find the best deals available to you are from credit unions or your bank. Don’t be fooled by car dealerships which offer 0% finance and cash-back deals. If you are lucky enough to be offered 0% finance then the car salesperson won’t offer to budge one dollar on the price, if you take a cash-back deal then you won’t be offered 0% interest. Believe me, keeping the financing of the car and the purchasing of the car separate is the best way to go forward.

Buying A Car – Timing is Crucial

Well, we all know that the engine timing is crucial for the efficient running of your auto, but what about when you step into the car dealership to buy your new car? That can make a big difference too . . .

Weekends are very often busy periods for car dealerships, the majority of their business will be conducted over a weekend, but on Mondays the sales staff could be more motivated to cut a deal ‘cos they’ll want to get one in early before a few more potentially slow days.  If you can, go car shopping on Mondays, but not just any old Monday . . .

The end of the month is often a great time to go car shopping ‘cos that’s when the dealers will get their bonus, and if they’re a couple of deals short of their target then you could be in for a great deal to make up the numbers. The last Monday of the month then, that’s the best day to get a good deal when you buy an auto.


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