installment loans: what you should do and what you should avoid while purchasing and financing a car

Installment Loans:

What you should do and what you should avoid while purchasing and financing a car.

ADM Financial Literacy

Do: Know your credit

Don’t: Pay more for financing because someone tells you your credit is “fair” or “bad”

Solution: Go to creditkarma.com or similar website to access free credit report.


Do: Understand your budget

Don’t: Get in over your head and ruin your credit

Solution: Determine what monthly payment you can afford and stick to that payment


Do: Understand the market price of your target vehicle

Don’t: Get to the car dealer and fall in love with the car and decide “I am just going to buy it”.

Solution: Bring a printout of the “True Market Value” of your target vehicle so salesperson realizes you are a well informed consumer.


Do: Shop your car loan

Don’t: Get to the car dealer and fall in love with the car and decide “just to get financing there”.

Solution: Go to bankrate.com or other similar sites to see what rates are as well as start at your bank.


Do: Understand the “Total cost of the vehicle”.

Don’t: “Buy a payment”.

Solution: Understand the true cost of your loan prior to signing the dotted line.

• See the example on the next page


Beware of the “low payment”. Check out the “Total Interest Paid”!


Details of Transaction Better Payment Better Option

Cost of the Automobile $

12,000.00 $

12,000.00

Down Payment $

2,000.00 $

2,000.00

Amount Financed $

10,000.00 $

10,000.00

Interest Rate 7.00% 4.00%

# of payments 72 48

Monthly Payment $

170.49 $

225.79

Total Amount Paid $

14,275.28 $

12,837.95

Total Interest Paid $

2,275.28 $

837.95

Do: Understand the vehicle depreciation

Don’t: Get “Upside Down”.

Solution: Make sure you don’t borrow too much $ where your loan amount is higher than the value of your vehicle. You are still liable for the remainder of your loan if you cannot pay it off with the sale of your car.


Do: Be prepared to “walk”

Don’t: Get pressured into a loan you either don’t like or don’t understand.

Solution: This one is easy. Don’t enter the car lot unless you are prepared to leave without the car. Patience is a virtue.


Do: Act like a “cash buyer”

Don’t: Negotiate too many things at once. Just negotiate the price of the car.

Solution: Have a satisfactory financing option from somewhere other than the car dealer prior to driving onto the car lot.


Do: Understand the cost difference between a “price rebate” and a “rate discount”

Don’t: Immediately fall for the “Low Rate”.

Solution: Understand the total cost of each and choose the better option.

• See the example on the next page


Beware of the “low rate”. Check out the “Total Amount Paid”!

In this example, It’s almost $1000 better to take the rebate.


Details of Transaction $2000 Price Rebate Rate Discount (1.99%)

Cost of the Automobile $

12,000.00 $

12,000.00

"Price Rebate" $

2,000.00 $

-

Amount Financed $

10,000.00 $

12,000.00 Interest Rate 5.00% 0.00%# of payments 48 48

Monthly Payment $

230.29 $

250.00

Total Amount Paid $

11,054.06 $

12,000.00

Total Interest Paid $

1,054.06 $

-

Do: Be prepared to “walk”

Don’t: Get pressured into a loan you either don’t like or don’t understand.

Solution: This one is easy. Don’t enter the car lot unless you are prepared to leave without the car. Patience is a virtue.


Summary:

Just like many things in life. Do your homework. Preparation and knowledge will allow you to receive the best loan on your vehicle and minimize the “Total Cost”.

This will ensure you get the most “bang for your buck”.


installment loans: what you should do and what you should avoid while purchasing and financing a car

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