Money saving tips when negotiating a car loan

Money saving tips when negotiating a car loan

Guest Post: Next to purchasing a home, your car is probably the most significant purchase you’ll make. Most of us don’t have the cash to pay for a new car up front, which means it’s necessary to borrow money to cover the expense. Car loans can vary in terms of interest rates, monthly payments, and loan terms, so it’s important to review all of your options carefully to find ways to save. The following are a few tips to keep in mind to help stay on budget.

Set a budget in advance

As a general rule, it’s best to stick to a car payment plan that represents less than 20% of your total disposable income. This should include not only the monthly car payments, but also the cost of your insurance and fuel. Before you sit down to talk to any lenders or set foot in a dealership, calculate what your maximum loan amount looks like and stick to your guns.

Avoid dealer loans

Taking out a loan from the dealer is certainly tempting. It streamlines the purchasing process so that you can be in and out in an afternoon, with the keys to a shiny new car in your hands. Financial institutions will usually give you better rates though, so at the very least you should around to compare your options. If the dealer asks you how you plan to pay for the car, you can simply say that you plan to pay in cash, letting them know immediately that you’re not interested. This spares you the extra fees or financing charges that dealers tend to slip into their agreements.

Consider a factory certified pre-owned car

An instant way to lower loan payments is to choose a cheaper car. This could mean looking at alternative ATV sales and motorcycles which typically cost less, or it could mean opting for gently used cars. Vehicles which are pre-owned and factory certified are a step up from your typical used car, however. A certified car has been repaired and inspected thoroughly before it’s allowed back into the showroom, and it comes with a warranty.

Use leasing as a last resort

One attractive financing option is to sign up for a lease rather than buying the car. This may garner you lower monthly payments, and eliminates the need for a down payment. If you’re low on cash, it might seem like you can save money by leasing. Yet at the end of the lease you’ll need to give the car back, leaving you with nothing to show for it. Buying a car requires steady loan payments, but at the end of the loan term you own your car and the only payments you’ll be responsible for are insurance, fuel and repairs.

Choose a shorter loan term

Like leasing, long-term auto loans are attractive because they involve lower monthly payments. For the cash-strapped auto buyer, paying less seems like a good thing. However, you’ll be paying a lot more over the long run in interest payments. An ideal loan term falls within the 3-5 year range, although you may be offered a term as long as seven years.

By taking the time to compare your loan options as carefully as you do your car features, you should be able to negotiate a more favourable rate and stay within budget.

2 thoughts on “Money saving tips when negotiating a car loan”

  1. Dear aaina,

    Thank you very much for this article, it is certainly valuable information for everyone willing to negotiate a car loan.
    There are some other advices I’d like to add to yours which are easy and really useful as well:

    – Bargain over the Internet. Sure, you show up to test drive the car, but you negotiate price and financing via computer. You can even have the vehicle delivered to your home or office and sign the paperwork there.

    You’ll save three ways. First, most Internet department salespeople are salaried and get extra bonuses based on volume rather than commissions based on the sales price. That means they have the incentive to cut you the best price to move cars, he says. The average savings when you deal over the Internet is $1,000 to $2,000, says Reed.

    Second, you avoid the dreaded financing and insurance, or “F and I,” office. This is where buyers can encounter the add-ons and extra fees which threaten to negate whatever great deal they negotiated over the Internet or in the showroom, as you’ve said in the article.

    Third, you can shop and negotiate during moments when it’s convenient for you. No killing time on a hard plastic chair while your salesman “wrestles” his manager for a better deal.

    – Pit dealers against each other. The object here is to start a bidding war for your business. Once you’ve determined which make and model you want, contact a handful of dealers via the Internet, tell them what you want and when you want to buy. Then ask for their best price, let them know you’re talking to other dealers and plan to give the sale to whoever cuts you the best deal.

    “Think of it as reverse eBay,”. “They’re haggling over you.”

    – Time the market. One more way to save: Buy at the end of the model year. August through October is usually a really good time to buy if you want to get the current year at a discount.

    If that doesn’t suit your schedule, you sometimes can get a better deal by buying at the end of the month if the sales staff is trying to make its quota, Ostroff says.

    I hope you find this useful! Thanks for your articles.

    Regards,

    Oscar from SortMySuper.com.au
    http://sortmysuper.com.au/

  2. Hi Penina

    Thank you very much for this article, this is certainly valuable information for everyone willing to negotiate a car loan.
    There are some other advice I’d like to add to yours which is easy and really useful as well:

    – Bargain over the Internet. Sure, you show up to test drive the car, but you negotiate price and financing via computer. You can even have the vehicle delivered to your home or office and sign the paperwork there.

    You’ll save three ways.

    First, most Internet department salespeople are salaried and get extra bonuses based on volume rather than commissions based on the sales price. That means they have the incentive to cut you the best price to move cars, he says. The average savings when you deal over the Internet is $1,000 to $2,000, says Reed.

    Second, you avoid the dreaded financing and insurance, or “F and I,” office. This is where buyers can encounter the add-ons and extra fees which threaten to negate whatever great deal they negotiated over the Internet or in the showroom, as you’ve said in the article.

    Third, you can shop and negotiate during moments when it’s convenient for you. No killing time on a hard plastic chair while your salesman “wrestles” his manager for a better deal.

    – Pit dealers against each other. The object here is to start a bidding war for your business. Once you’ve determined which make and model you want, contact a handful of dealers via the Internet, tell them what you want and when you want to buy. Then ask for their best price, let them know you’re talking to other dealers and plan to give the sale to whoever cuts you the best deal.

    “Think of it as reverse eBay,”. “They’re haggling over you.”

    – Time the market. One more way to save: Buy at the end of the model year. August through October is usually a really good time to buy if you want to get the current year at a discount.

    If that doesn’t suit your schedule, you sometimes can get a better deal by buying at the end of the month if the sales staff is trying to make its quota, Ostroff says.

    I hope you find this useful! Thanks for your articles.

    Regards,

    Oscar from SortMySuper.com.au
    http://sortmysuper.com.au/

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