7 Things You Need to Know Before You Get a Car Loan
A survey conducted by Cox Automotive found that only 38-percent of car buyers are happy with the price they paid for their vehicle. If you want to be one of those happy drivers, it’s important to come to the car loan game prepared.
Read on to learn seven things you should know before signing that dotted line.
Fact 1: Your Smart Phone Is Your Best Friend
Before the internet, the dealership held all the cards. If you wanted to know more about the vehicle you wanted, you had to tango with a salesman. Now, a simple Google search gives you access to expert car reviews, car specs, add-on pricing, and vehicle history.
In other words: the smartphone has marginalized the salesman.
To get the best deal, you need to take full advantage of that fact. Start by going to big car review sites like Wheels.ca to find a model that suits your needs. Then, visit a site like Autotrader.ca to figure out a ballpark price for that vehicle. Once that’s done, you can look for dealers in your area with great reviews and the car you want.
Finally, when it comes time to sign the paperwork, you can use your phone to decipher any questionable terms or legal-ese.
Fact 2: Your Credit Score Is Key to Securing a Great Car Loan
Your credit score is the most important factor in determining what type of car loan you’ll get. This is true whether you go through a dealership, online lender, or bank. Going into the car buying process without some knowledge of your current credit standing is a huge mistake.
To ensure you don’t get surprised by your interest rate, you can visit Credit Karma or one of the credit bureaus to check your credit score. If your score is below average, try and repair it before you apply. This not only helps you to secure better rates but can also make you eligible for certain dealer promotions.
Fact 3: Extended Warranties and Other Add-Ons are Usually Overpriced
For most dealers, new car sales account for just 2 to 3 percent of their profits. While dealers make slightly more off used cars, they don’t really bring home the bacon.
That honor belongs to the add-ons. It’s things like service contracts, financing mark-ups, extended warranties, and financing mark-ups that really keeps dealerships afloat. A survey by NADA found that 37-percent of a dealership’s gross profits comes from the sale of finance and insurance products. This amounts to approximately $1200 per car.
No matter how important the dealership makes it sound, add-ons are rarely a smart buy. With the average vehicle warranty now topping 36,000, there’s no reason for the average person to shell out $500 for an extended service plan.
Fact 4: Shopping Around Is Key
A lot of people think car financing is only available through dealers, but that’s not true. There are plenty of credit unions, banks, and online lenders willing to finance your car loan. Furthermore, thanks to dealer markups, these third-party options are almost always cheaper.
So, you should reach out to a bank or two and fill out our online application before you step foot on the dealer’s lot. When the time comes to visit Big Mike’s Auto Emporium, be sure to take these preapprovals with you!
They’re a great bargaining chip. The person in charge of dealership financing will walk in knowing they have to match or beat that price. This often opens the door to lower interest rates and special promotions.
Fact 5: Haggling Is an Important Part of Getting a Good Deal
Whether you get the car from a friend or a dealership, you should come ready to negotiate. Doing so can save you thousands of dollars over the life of the car loan. If you aren’t that confident in your haggling abilities, you can try taking a free course like this one.
Now that you’re better armed against the salesman, it’s time to arm yourself. The best place to start is at a site like Autotrader.ca. Sites like this will give you an estimated car value based on a vehicle’s condition, mileage, and extra features. After getting a few estimates, subtract 10 to 20 percent from the average price and use that as a baseline for your negotiations.
You should also be smart about when you buy:
- September and December often have the best incentives
- Buying a car on Wednesdays or Mondays can save you some money
- Buying near the end of the month, when most salesmen are struggling to meet their quotas, can lead to big savings
- The beginning of the year offers the biggest savings on last year’s models
Fact 6: Car Loans Require a Lot of Documentation
If you want to walk out with a car, you need to walk in with the proper paperwork. In addition to those preapprovals mentioned earlier, you’ll need your:
- Proof of Income: These assure the bank or dealership verify that you can afford the vehicle you’re applying for. The self-employed will need to use bank statements instead of paystubs.
- Proof of Residence: The person supplying your car loan will need to verify your address. Bring along a bill, bank statement, or another form of mail that lists your current address. You should avoid bringing anything more than a month old.
- Vehicle Information: You should know what kind of car you want before you walk into the dealership. Be sure to bring information like VIN, purchase price, and specifications with you. Most of this information can be found on the dealership’s website.
- Proof of Insurance: You can’t drive the car off the lot without insurance. Call your insurance company on the day of purchase and let them know you’re getting a new car. Some companies even let you download an instant proof of insurance via an online app.
Fact 7: Details Are Important
As mentioned earlier, dealerships make very little money off the sale of a car itself. Most of their profit comes from warranties and add-ons. They’re kind of like movie theaters in that regard.
To make money, a lot of dealers tack these extras on to the final invoice without telling you about it. They’re counting on you being too excited about your new car to go through the invoice line by line. But, to get a good deal, you need to do exactly that.
Comb every line of your paperwork before you sign. As you do so, ask yourself:
- Is my interest rate what we agreed on?
- Is there a penalty for prepayment?
- Are there any extras on here that I didn’t ask for?
- Does the final price match what I expected?
If you find something fishy, speak up.
Ready to Drive Off in the Car of Your Dreams?
Whether this is your first car or your third, we hope you’ve learned something about the car buying process.
When you’re ready to get those car loan preapprovals we mentioned, click here to fill out our online application form.