The Best Way to Finance a Car

Car finance
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Banks: This requires you to go directly to a bank or a credit union for a car loan. The ideal thing to do is get preapproved for a car loan before you even go to a dealership. The lender will offer you a quote and a letter of commitment that you can show the dealer. You’ll know your upper limit, the dealer won’t waste your time trying to sell you any add-ons, and you’ll save on any dealer markup. Preapproval will require you to share the details about the vehicle you want. Remember that the options may depend on whether the car is new or used.

Dealer: If you choose to finance through a dealer, they’ll have you fill out a credit application which they will share with multiple lenders. You will then be able to compare a few rates and terms to choose the best option for you. If they have promotions going on, then you may get lower interest rates and maybe even 0% APR if you qualify.

But if you have bad or no credit, then the costs and down payment requirements will be very high.

Choosing: Be patient and calculate the option that will save you the most amount of money. The best option is to get preapproved from a bank or credit union and then check if the dealer can beat those rates. If you have bad credit, try and stick to credit unions, and if that’s not possible, banks or online lenders that specialize in bad credit loans. Remember to apply for preapproval or loan rate shopping in one 14-day period to minimize the effect on your credit score.

Prepare: Before you do any of the above, check your credit score. If it’s low, put in some time and work to improve your score before applying for a loan. It will save you a lot of money in the long run. Save at least 10% of the price of the car to offer it as a down payment. The bigger your down payment, the smaller the loan, and the lower the interest you’ll pay over the next few years. The most important thing is your budget. Ensure that you can afford the monthly payments without defaulting.

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