Sure, you will be kicking a few tires but that will only be half of the battle. Know your limitations even before looking for that new car. If you would be paying for all car-related expenses, don’t forget to spend no more than 10% of your total earnings.
When negotiating for the price of your car, decide first on a price range and how much your down payment will be. Should you choose a long arrangement under a car finance loan, your down payment would be at the minimum. If you decide to trade the car within the first year, you will realize that you actually owe more than your car is worth. As a general rule, never apply for a car finance loan that is more than 80% of the price of the car, as indicated in the dealer’s invoice. Try to pay in cash or have equity for the car which is about 20% of the car’s true cost.
Usually, your car dealer will send you to their in-house financing department for a car finance loan. Dealers may have less-restrictive requirements than banks, however, they could insist on cut-rate car financing loans for you to apply for. Such car finance loans have 3% interest rates that could be attractive for the unsuspecting customer. Unfortunately, these low interest rates only apply only to certain models or short term car finance loans of 12 months tops. You’ll be surprised at how dealers make a lot of money on car finance loans, even when it’s done through the manufacturer.
As a good rule of thumb, always negotiate the price before you reveal that you are thinking about applying for a car finance loan. If they know ahead of time that you plan on wrapping up the deal with a car finance loan, they will frequently try to create a dilemma for you by giving you a lower rate on a higher price or a lower price at a higher finance rate. If you do decide on a car finance loan through the dealer, you can negotiate the interest rate. Dealerships usually have several loan sources, including local banks and the manufacturer’s credit company. Each source sets their rates to the dealer.
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