![]() ![]() Just remember: It never hurts to have some financially safe alternatives. You also set yourself up for higher interest expenses and increase the chances you'll fall into the same expensive cycle when it comes time to move on to your next car or truck. If you do this, you increase the chances of being "upside down" on your new loan - owing more than it's worth. This is often the hidden maneuver behind a dealer's offer to "pay off what you owe" on your current vehicle. If you owe money on your current car, you may also be tempted to roll your old debt into your new loan. We typically encourage you to plan for 15 to 20% in a down payment to help pay for tax, title, licensing and to reduce the impact that depreciation can have on your loan balance versus vehicle value. A lower out-of-pocket expense today, however, comes at the price of higher monthly payments and more money spent on interest. ![]() Lenders may offer you the option to not just finance the car's purchase price, but also tax, title, license and other charges. Be cautious of rolling extra charges into your loan. Your car is your collateral.Ĭar loans generally have lower rates than credit cards because they are a type of "secured loan." That means that you pledge your vehicle as collateral: If you don't keep up with your payments, it could be repossessed. Compare all of your options when looking at which available incentive is right for you. In most cases, you could be better off financially taking a cash rebate versus a low-rate offer. Since your debt may span several years, you should also evaluate the lender's reputation for providing quality service in setting up and servicing your loan.įinally, weigh 0% offers with rebates and compare your options to determine the best deal. Always look at the total interest expense over the life of the loan. Keep in mind, when banks or dealers advertise low interest rates, it could be a teaser rate for which only those with the best credit scores can qualify. Your credit score matters.Īs with most types of borrowing, your approval to borrow and your interest rate depend in part on your credit score and history. Be sure to balance what you want from your new car with the overall loan terms and costs. As such, it may be more difficult to afford the monthly payment with a shorter-term loan. While it is typically best to keep the loan term as short as possible to avoid paying more in interest or risk being upside down in the vehicle, we are seeing historically high prices on new and used vehicles. Also, factor in any anticipated changes to your income over the next few years, including bonuses and cost-of-living adjustments. That includes your insurance premium, gas, maintenance costs and, in some cases, parking. Consider your vehicle's total cost of ownership. Remember: Budget for more than just the monthly payment for your car. ![]() Determining this is as simple as knowing your financial situation and your goals - and not breaking your budget.Īs you're budgeting, consider spending no more than 15% of your take-home pay on the total cost of owning a vehicle. There can be a big difference between how much you're approved to borrow and how much you should borrow. You can try to get a loan approved, or preapproved or prequalified depending on the bank, in advance by the lender of your choice. Most dealers are eager to offer you financing, but you may get a better rate - and could drive a better price on the car - if you come to the negotiating table prepared. If you're just starting out on your car buying journey, review our guide for how to buy a car. However, if you're planning to borrow money to buy your next vehicle, and after you've assessed how much you should spend, you should spend time exploring lenders and their terms. Choosing a car or truck is a big decision usually made after a lot of research. ![]()
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