Financing a car, yes previously I stated this was bad debt, BUT we must remain mobile and sometimes public transportation is not always an option. A lot of people wait until their car is ready for the bone yard before they start searching and planning, this is a mistake! If you wait until the last minute, you will be forced to take what you can get, which is never a good thing. Here are three steps on how to limit money spent on financing a car:
1. Shop before it drops – Very simple concept, starting shopping around for cars in your pre-defined price range before you get into a pinch and have to get something you do not like. My uncle always told me, if you are going to pay for something, make sure you like it enough for $300 a month payment!
2. Check with your bank or credit union for interest rates – Obtaining rates through the dealership is usually a guaranteed way to get a higher interest rate, but when you are in a jam on a Saturday afternoon, it is probably the only available option. Dealerships usually get a percentage of money if they finance your car through a particular bank, and when money is on the line are they really going to look out for your best interest? Very questionable to say the least.
3. Keep a good credit score – Sounds obvious but this is the most important aspect of getting a great interest rate. If you have not so great credit, you might be forced to get a loan from a “buy here pay here” type of dealership and I have heard of interest rates being high as 25%, compared to a credit union where it can be 2%; a HUGE difference!
Overall I would think the good credit score is the most important factor. It not only applies for buying a car, but it is useful for anything that most cannot purchase without financing, such as a house. Using the three ideas above will guarantee a good interest rate and give you bargaining power with the dealership because you won’t need them since you are informed and, have a check from your bank in hand, and have a good credit score; you have all the options and power!
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