“You can paint it any color, as long as it is black.”
- Henry Ford on the Model T.
When you buy a car from the dealer, how do you pay for it? If you need to finance it, how do you know if you are getting a good deal? Anyone that has been to the car dealers can attest that if you are given a good APR on your finance, they will charge you an arm and a leg for the car, and if you are lucky enough to get a good quote on the car, they will hit you with a 10% or higher APR. In other words, they like your money in their pocketbooks.
In this article, we avoid the car price negotiation part, as they are readily available thru a search online. We assume that you are the negotiator and are now at the finance department step. We provide some very useful tips on how you can pay for your next car.
You need to know TWO rules:
You should know your credit status (up to date credit score) and finance options (mainly your bank and credit union) before you make the purchase.
Even after you bought the car and financed it at the dealer, you can still refinance it with an outside source to save on the finance charges.
It is customary that the finance department at the dealership to hassle you over your credit score or even if yours is flawless, they will find a way to put you on a lower tier with a higher interest rate such as whether if you have any history in financing a car. You don’t want to be caught off guard and suspect that your credit rating is that low. You should always bring a copy of your recent credit report with credit score for your personal benefit. If they do not qualify you for their lowest 4.9% finance but offered you their 12.9%, don’t sweat over it. Assuming that you have done your homework and are reasonably responsible with your finances, you will be able to get your car and a good rate.
Here is the recipe to follow:
Check with your bank
Many banks have better rates than the typical dealers. It is not uncommon to see that you can get a 7% from a bank whereas the dealer will only allow you a 12%.
Check with your credit union
Many professions, such as teachers, have Credit Unions that offer amazing rates. You might be able get a 5% interest loan for you car.
Check with your credit card companies
Credit card companies don’t have automobile loans, but you can find out what balance transfer rates are there. Some credit card companies, such as Citibank, Discover, and American Express, often run very special promotions called fixed rate until pay in full. What this means is that you can have them pay off your auto loan and carry your balance on that card instead. Some recent promotions include 3.9% until pay in full with Citibank, 2.9% until pay in full with American Express, and a 0.9% until pay in full with Discover.
In this option, you need to know the details from your credit card before taking it. Your ultra low rate will end and revert to an ultra high rate of over 20% if you ever miss a payment, even if you miss a payment with a completely different account.
Let's assume that you are taking a loan for $20,000 and compare the amount you end up paying under the different options. For a 5 year payment plan, your monthly payment will be:
$454 per month under the 12.9% Dealer rate
$396 per month under the 7% Bank loan
$377 per month under the 5% Credit Union loan
$367 per month under the 3.9% Credit Card
$358 per month under the 2.9% Credit Card, and
$341 per month under the 0.9% Credit Card.
That might not look like a big difference on a monthly basis but if you look at the difference over the 5 years, you will see that you will save $4,620 if you choose the Credit Union loan over the Dealer rate, and if your credit card offers you the 0.9%, you end up saving $6,780 over the 5 years. You will feel good with your new car in any case; you will feel even better driving your new car with that extra saving in your pocket book. Now, if only they have such saving on gasoline...
