By Liz Lizama
Major purchases like buying a car may seem intimidating around the holidays, but it might actually be a prime opportunity to score a great deal. As the year comes to an end, dealerships are eager to make room for the new year’s models.
Moreover, making year-end sales goals is especially critical, which places buyers in a better position to negotiate. For the best possible results, however, researching auto loans is essential. Here are some car financing tips to consider during the buying process:
1. Regularly monitor credit
Monitoring credit history is key, especially when considering applying for an auto loan. “Most applicants that come in with bad credit is because they simply forgot to pay a $25 credit card or phone bill,” said Nimat Naderi, finance manager of Don Beyer Volvo Falls Church.
Potential buyers should check their credit report at least every six months to be aware of any unusual activity. And while some banks may be more stringent than others, Naderi explained that dealerships can search multiple banks to find one that accepts lower credit scores.
2. Stable employment
Although established payment history is vital, excellent credit is not enough to secure an auto loan. Loan applicants must demonstrate stable employment and sufficient income to cover monthly payments. Potential buyers should consider their monthly income to determine what they can afford, including the cost of insurance and fuel.
3. Compare all financing options
There are many financing options from the car dealership to banks and credit unions and even auto insurance companies. Each can offer their own respective advantages, so exploring each option may be worthwhile. Car dealerships often offer rebates or 0 percent interest on new cars. Typically, loans for new cars carry a lesser interest rate than financing a used car regardless of the financial institution. Personal banks or credit unions are usually more likely to offer lower interest rates.
Open to faculty, staff, students and immediate families of Falls Church City Public Schools as well as anyone that works, lives, worships, volunteers or attends schools in Fairfax County, Apple Federal Credit Union offers auto loan rates as low as 1.49 percent. Auto insurance companies also have banks that can lend to interested policyholders. State Farm Bank has rates as low as 2.19 percent.
Daniel Waetjen of BB&T Bank said that buyers ask “which is better – [using] the rebate as down payment and traditional loan or [forfeiting] the rebate and [taking] 0 percent from the dealer?”
4. Vehicle trading
Buyers should assess the trade-in value of their current car. Online sites like Kelley Blue Book (kbb.com) can help determine the car’s worth. While selling a used car directly to someone else usually yields more money, it also involves more time and effort. When trading-in a vehicle, it is important to ensure the new auto loan covers any negative equity from the previous loan.
5. Down payment
It is possible to finance a car without a down payment. However, if buyers do not put any money down, Naderi recommends GAP insurance to pay the difference. Value for a new vehicle quickly depreciates once driven off the lot, sometimes up to 30 percent in the first year alone.
So while insurance companies will cut a check out solely for the car’s value and not the amount remaining on the loan, a buyer who totals their car may be left still paying for an auto loan that exceeds the actual amount they receive from their insurance company for the loss. GAP insurance would cover that difference should the need arise though.