If youre like most Americans, you dont have $36,270 (the average new car price) saved up and burning a hole in your pocket. However much or little you have saved toward the purchase price, youll need to finance the rest.
Once you reach a deal, its time to talk financing. Knowing what to ask will determine how much or how little will be added to that purchase price.
Where Will You Get Your Financing: Bank or Dealer?
There are pros and cons to either option, and lots of exceptions. You cant beat dealer financing for convenience. But sometimes a bank or credit union can beat a dealers interest rate, especially if youre an existing customer. Check your banks auto loan rates before you visit the dealer.
How Much Will You Put Down?
This is another question to ask yourself before you start car shopping. Dealers prey on the unprepared. Put down as much as possible, ideally 10 percent to 20 percent. It will save money you over time, no matter the rate or terms (number of monthly payments) of your loan.
What Is the Dealers Price?
The price on the sticker isnt always the price you end up paying. Most dealers have a healthy profit margin built into that MSRP (manufacturers suggested retail price). Research and find the invoice price from resources like the Kelley Blue Book, Edmunds, NADA Guides or TrueCar. Find the vehicles identification number (VIN#) when youre browsing the dealers website—again, before you visit in person. This will help you negotiate the best price final price, and the amount youll have to finance. Once that price is negotiated, get it in writing before you sign anything or even talk financing.
What Is the Dealers Best Financing Rate?
Unlike a bank, auto dealers can negotiate interest rates, usually based on how many years you want to finance, how much youre putting down, whether you have a trade-in, manufacturer rebates, your credit score and the agreed-upon purchase price. Sometimes it even comes down to the model of vehicle. Yes, some dealers can offer 0 percent financing on certain new vehicle models if you have good enough credit. Hard as it may be in the moment, get a written quote and shop it against other dealers for the same make and model. The extra time and effort could mean thousands of dollars in your pocket.
Should You Get an Extended Warranty?
Most buyers dont fall for the classic undercarriage rust protection gag. It has been replaced by the extended powertrain warranty pitched by most dealers, especially for used cars. This can extend the coverage above and beyond the manufacturers standard warranty, which is typically stated in years or miles. Check your make and models performance and quality history. If it is prone to engine, transmission or drivetrain issues, an extended warranty might make sense. If not, dont fall for the if the computer chip fails, you could be looking at $3,000 repair line.
Should You Buy Gap Insurance?
Be prepared to field this question right after the extended warranty discussion. Gap insurance covers the gap between what you owe on the car versus its value should you wreck the thing in the first few years. If you put down 20 percent, youve most likely covered the depreciated value the moment you drive it off the dealer lot. However, if you put down less than that, or rolled in debt from a previous loan, sales tax and/or insurance into the financing, gap insurance may be worth the extra cost. A lot of variables come into play. Follow these helpful guidelines.
Should You Add Sales Tax, License and Tag Fees Into the Loan?
If at all possible, no. Remember, every dollar you add to the final amount financed, the higher your monthly payment will be. Dont forget to estimate these costs when determining how much you can come up with for a down payment.
Most of these questions are ones to answer before you set foot on the car lot. The fewer questions you have to ask the salesperson or finance manager, the fewer ways they have to manipulate the answers—and the final transaction—according to their best interests rather than yours.