Save up, shop smart for that new car

If you’re smart about financing your car, you can save yourself money and protect yourself from owing too much. Here are a few things you can do, before you start browsing.

Save as much as you can for a down payment.

The more you pay up front for your car, the less you’ll need to borrow. If you borrow a smaller amount, you’ll also pay less in interest fees over time, leaving more room in your budget for the other parts of your life. You may also qualify for a shorter loan term, and own your car sooner than expected.

Check your credit reports.

The interest rate on your car loan will depend on your credit score. The higher your score, the lower the interest rate you’ll qualify for. Borrowing at a lower APR (annual percentage rate) will leave more cash in your pocket over the life of the loan.

Information on your credit reports determine, in large part, your overall credit score. You can download these for free once a year from the three major credit bureaus, at annualcreditreport.com. Make sure all of the information is accurate, and if it’s not, correct it. You want your credit score as high as possible before you apply. Make sure that you’re paying your obligations on time, and that you’re paying as much as you can on your lines of credit.

Figure out the total cost of the car you can afford.

By now you should know, from last week’s column, how much room there is in your monthly budget to pay for your car.

What you want to do now is find out what price range is affordable for you. You can start by using a car affordability calculator online, for a first estimate. You can find these calculators at autos.yahoo.com, Edmunds.com, and Cars.com.

You will need:

•Your monthly payment

•Your down payment

•An estimated APR (keep in mind, this will depend on your credit history)

•Your term (The number of months you’re comfortable with carrying a loan)

•The value of a car you’re trading in.

Add these figures to your calculator, and you should have a final number: the amount you can afford to pay for a car.

Keep in mind, this is just an estimate. It will give you some broad guidelines for kinds of cars you can browse — whether or not you should choose an economy car, or whether you can upgrade.

Inquire with financial institutions about rates you qualify for.

Now that you have a rough idea of how much you can afford, and you’ve done some research on cars that fit that affordability ceiling, you can start checking on the kinds of rates you’ll qualify for.

It’s a good idea to check with a wide range of financial institutions. You can talk to them about the monthly amount you can pay, and the estimated amount you’d like to borrow. Different institutions will give you different APR rates and terms, and you can compare these rates with each other and with the rates you can get from the car dealer. It never hurts to have as much information as possible, before heading in to buy your car.

Now that you know what you can afford, need, and what kind of financing is available to you, you’re ready for the next step: shopping around.

Michael Camacho is the president and chief executive officer of Personal Finance Center. He has more than 18 years experience in retail banking and with financial institutions in Guam and Hawaii.

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