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 A
large percentage of car buyers now use the Internet to gather information, get price quotes, even buy the car directly
online. And, more and more buyers are taking advantage of online sources for financing the vehicle they want to
buy. In most cases the application process is simple and approvals are received quickly. By arming themselves with
rates (and even approved loans) consumers are much better equipped to visit car dealerships.
Look before you leap! It is important that you arrange your financing
prior to negotiating price with a dealership--ideally, before you even visit a dealership. The financing "arm"
of a new car dealership is a prolific profit center--dealers will often take smaller profit deals when selling
the car (the "front-end" profit) if they know that they are going to make a nice profit on the financing
of the car (the "back-end" profit). The problem with this is that you run the risk of giving all (or
more) of your purchase savings back when it comes time to finance the car!
Online Resources.
An advantage of the online lenders is the speed of the application and approval process. You can apply in minutes,
get a quick approval (or, in the case of a source like LendingTree, competing offers).
Upon approval, Capital One Auto Finance will
have a check in your hand as quickly as the next day.
Home equity loans
have become a popular way to finance a car in recent years. The advantage is the possible tax deductibility of
the interest paid on such a loan. To get comparisons of home equity loans, visit the section devoted to Home Equity Loans.
Note: The IRS will only allow you to deduct interest on a loan amount that does not exceed the value of your home,
for good reason. Borrowing in excess of your home's value is not recommended.
Hints on Online Auto Loans
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Check your credit upfront.
Many financial institutions determine interest rates on a "tier" basis. The better your credit, and the
more "in line" the price of the car is in relation to invoice (on a new car) or book value (on a used
car), the lower your financing rate will be. It is a good idea, then, to make sure your credit report does not
have mistakes or omissions before the bank sees it. Click here for a free copy of your credit report. |
| Investigate loan options before you visit the dealership. One
of the worst car buying mistakes is to simply accept the loan offer that the dealer offers. |
| Negotiate as a cash buyer. With
the financing handled before you negotiate with a dealer, you can shop like a cash buyer--an important advantage
since you won't have financing details muddying the water. |
| Don't overextend the term.
Keep the term (the number of years financed) as short as possible. Extending the term may save a few dollars per
month but cost thousands of dollars in interest in the long run. |
| Maximize your down payment.
Don't take food out of your children's mouths and don't deplete your savings, but if you are going to stretch on
anything, do it on the down payment rather than the monthly payment. The more you put into the car upfront, the
less likely you are to find yourself with negative equity. |
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