Consumer’s Guide to Auto Loans:
Tips on financing your new or used vehicle
Most people think that the most important decision in buying a car is deciding on the make and color of the vehicle. However, there are many decisions that need to be made during the course of the buying process. Investigating your financing options, understanding the process, and being prepared to negotiate can have a big impact on how much you really pay for your new wheels.
Top car-buying mistakes:
Not doing your research. There are several free consumer resources available to you such as Kelley Blue Book, Edmunds.com, and Nada.com that provide pricing and other important information on thousands of makes and models. Knowing this information puts the deal in your favor. Not shopping interest rates. It may be very convenient to do everything at the dealership, but unless you have spot-free credit, those “great” deals are most likely not available for you. You’re better off financing at your credit union. Negotiating monthly payment instead of interest rate. It makes much more of an impact on your monthly payment if you negotiate the interest rate instead. For example: $20,000 financed over five years at 5.90% APR costs $3,143.60 in total interest over the life of the loan. But that same car financed for five years at 8.90% APR costs $4,851.82 in total interest. That’s a difference of $1,708.22! Financing your car for as long as possible to make it more “affordable.” A $20,000 vehicle financed for four years at 5.90% APR has a monthly payment of $468.78. If you finance it for six years instead, the payment is $330.51, which seems way more affordable. But the longer you finance a loan, the longer you pay interest on that loan. The interest for the four-year loan is $2,502.07, while the six-year loan charges $3,797.04 in total interest. That lower payment doesn’t seem so affordable now.
Car-buying Frequently Asked Questions
Is 0% financing really a good deal? Actually, it can be a good deal, as long as you understand what you’re buying into. First, 0% financing is offered primarily to move new car inventory off of dealer lots. But remember that there are typically stipulations involved with 0% financing, such as requiring a spotless credit record, or only for 36-month terms or less. Also consider how long you’re keeping your vehicle or the loan. If you decide to trade-in early or pay off the loan, you actually save money with a traditional loan and taking the rebate that is offered instead of the 0% financing.
Are lenders required to disclose a prepayment penalty? Yes, all fees and charges must be spelled out in your original loan contract, including any prepayment penalties. If you don’t see it, ask the lender to point out the section that deals with prepayment of the loan. Many lenders, such as Members First Credit Union, do not charge a prepayment penalty. What does it mean when you are “upside down” in a loan? When you are upside down on an auto loan, it means you owe more on your loan than your car is worth. Some cars depreciate faster than others, so it is important to look at the retail value of used models of the car you are thinking about purchasing so that you get an idea of how it keeps its value. Statistics are now showing that 40% of consumers are upside down on their car.
.25% APR Discount
Now that you know how to get the best deal on a car, visit Members First Credit Union for the best deal on your new car financing! Bring in this coupon for .25% off your next new or used auto loan. Call our Member Relations Department at 614-462-6850 to apply for your new or used vehicle loan. Get an additional .25% off your rate when you apply online at www.members1stcu.org.
*Not valid on existing MFCU loans