By | February 8, 2018

You have reached the finish line for purchasing the car of your dreams. After performing the research to find the right vehicle and sweating out a few negotiation sessions, only one item remains on your car buying to do list.

You have to fund the purchase of the car.

Unless you just won the lottery or received a nice inheritance from as loved one, you have to finance the purchase of a vehicle by taking out some type of auto loan. How to get the best car financing involves following several time tested tips.

Know Your Credit History

Under federal law, you have the right to receive free copies of your credit report from the three primary credit reporting agencies: Experian, Equifax, and TransUnion. All you have to do is visit AnnualCreditReport.com to request the copies of your credit report. Although receiving a credit report from the big three credit reporting agencies does not cost you any money, you have to pay a small fee to see your credit score. The FICO score you have achieved goes a long way in determining whether a bank or car dealership will want to finance the purchase of vehicle, as well as the amount of interest a lender charges for access to borrowed money. Senior attorney for the San Francisco office of Consumers Union, Gail Hillebrand, says “What’s considered good for a car loan will be a little lower than what’s good for a mortgage,”

Focus on the Financing Amount

Far too many consumers pay attention to what they have to pay monthly for financing a car. It’s a good idea to calculate how much you can afford monthly, but the ultimate goal for auto financing is to focus on the entire amount of a car loan. Many lenders want you to focus on monthly payments to encourage you to extend the life of a car loan and thus, force you to borrow more money for the term of an auto loan. The longer the life of a loan, the more interest a lender makes off a car loan.

Make the Most Out of the Down Payment

The most effective strategy for getting the terms of an auto loan that you want is to make as much of a down payment as possible. For a vehicle worth $20,000, a $2,000 down payment makes the principal of a car loan $18,000. You are off to a good start to achieving the best car financing, but you still have to pay interest on an $18,000 car loan. By plunking down $5,000 in cash, you reduce the amount of financing needed by 25%, which lowers your monthly auto loan payments.

Find the Best Car Financing First

It sound counterintuitive, but shopping for car financing before shopping for a vehicle is a savvy financial strategy that can save you thousands of dollars. Before you negotiate with a car dealership sales representative, begin the car loan process by submitting applications to banks, credit unions, and highly rated online lenders. Anthony Giorgianni, who works as the associate finance editor of Consumer Reports Money, says “Generally, we’ve seen that online banks have been the best,” Vice President Jim Hanson of the Credit Union National Association recommends financing a car through a credit union because the financial institution typically offers loans that come with interest rates up to 1.5% lower than what banks offer customers.

Don’t Sign until You Read the Fine Print

A car loan represents a binding legal agreement that lasts for several years. Take the time necessary to read thorough the entire contract. One of the warning signs to look for in a loan contract is mandatory binding arbitration, which removes your legal right to take a lender to court. Other fine print issues to search for include prepayment penalties and omitted verbal promises made by the lender. You also have to watch out for the inclusion of variable interest rate clauses that can make monthly car payments exceed what your monthly budget can afford.

The Internet is your friend when it comes to receiving the best car financing. Several websites offer loan calculation tools to ensure you understand the financial implications of taking out a car loan to finance the purchase of a vehicle. Bankrate offers numerous car financing tools, including an auto calculator that allows you to confirm the monthly payment of an auto loan.

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