Take Control of Auto Financing

Illustration: Dan Page

Financing

Before you step into the dealer showroom, shop banks to find their best rates on an auto loan. You’ll usually do better to get a loan from a financial institution than from the dealership, although “zero percent financing” offers sometimes work in a buyer’s favor when weighing dealer incentives and rebates against the final price tag. It’s worth doing the math.

Take control: Getting approved for a loan by a bank means there’s one less thing you have to worry about while at the negotiating table, easing the stress of what can be a frustrating experience.

Loan Length

The longer your loan, the more you’ll typically pay for the vehicle. Small monthly payments might seem enticing, but if you’re making them for seven years, you’ll pay more money in the end. What’s more, long-term loans typically don’t keep up with the speed of depreciation, leaving you owing more on your car than it’s worth if you sell it.

Take control: Understand how small monthly payments add up. An online loan calculator can let you see the total cost of your vehicle, including interest, before you buy it. (Find loan calculators at AAA.)

Down Payments

The more cash you can pay up-front as a down payment, the better. You can opt for a shorter-term loan, which means you’ll pay less toward interest over the long haul. You might even get a better interest rate, because lenders see you as less of a credit risk. It’s important, however, to be sure you reserve enough money to keep up with the costs of vehicle ownership or to be prepared for unexpected expenses in your life.

Take control: Decide in advance where your up-front cash will come from. Does it make sense to tap an interest- bearing savings account, for example, to obtain a car loan with 2 percent interest? If you’re planning to trade in your current vehicle as a down payment, an independent source such as the NADA Appraisal Guide can tell you how much it’s worth.