New Car Buying Advice

The loan

Set up your loan in advance

If you’re borrowing about $25,000 for a new car, a difference of only two percentage points in the interest rate can add up to more than $1,000 over the lifetime of the loan. And that can easily happen if you’re not paying attention to the financing terms.

Even before you know which vehicle you’re going to buy, you can get a jump on the process by comparing interest rates and getting pre-approved for a loan. Go to websites such as BankRate.com, ELoan.com, or LendingTree.com, to see what typical interest rates are in your area. Then check with your bank or credit union (if applicable), as well as other local banks and lending institutions to compare rates.

Focus on the annual percentage rate (APR). And try and keep the loan length as short as possible, while still having an affordable monthly payment. A four-year loan costs you far less overall than a five- or six-year loan at the same rate.

Also, call the dealerships that sell the models in which you’re interested to see how their rates compare. Go online to the manufacturer websites and check for any special financing rates. You may find that a model on your short list has a special low-interest rate available. But if so, call the dealership to make sure you qualify for it; such incentives are often only available to buyers with high credit scores.

Getting pre-approved by a bank or credit union keeps the negotiations at the dealership simpler and removes some of the stress. And you can still decide to take a dealer loan if it’s a better rate.

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