But many Americans make big mistakes buying cars. Take new car purchases with a trade-in. A third of buyers roll over an average of $5,000 in debt from their last car into their new loan. They're paying for a car they don't drive anymore. Ouch! That is not a winning personal finance strategy.
\"The single best advice I can give to people is to get preapproved for a car loan from your bank, a credit union or an online lender,\" says Philip Reed. He's an automotive expert who writes a column for the personal finance site NerdWallet. He also worked undercover at an auto dealership to learn the secrets of the business when he worked for the car-buying site Edmunds.com. So Reed is going to pull back the curtain on the car-buying game.
For one thing, he says, getting a loan from a lender outside the car dealership prompts buyers to think about a crucial question: \"How much car can I afford You want to do that before a salesperson has you falling in love with the limited model with the sunroof and leather seats.\"
\"The preapproval will act as a bargaining chip,\" he says. \"If you're preapproved at 4.5%, the dealer says, 'Hey, you know, I can get you 3.5. Would you be interested' And it's a good idea to take it, but make sure all of the terms and conditions, meaning the down payment and the length of the loan, remain the same.\"
Whitmire says you need to be a bit more old school about things and actually drive a bunch of cars. \"I've been doing this for 40 years,\" she says. \"It used to be that people would go to a dealership and drive around and figure out what car they actually wanted, what their choices were.\"
The salesperson at the dealership will often want to know if you're planning to trade in another car and whether you're also looking to get a loan through the dealership. Reed says don't answer those questions! That makes the game too complicated, and you're playing against pros.
A third of new car loans are now longer than six years. And that's \"a really dangerous trend,\" says Reed. We have a whole story about why that's the case. In short, a seven-year loan will mean lower monthly payments than a five-year loan. But it will also mean paying a lot more money in interest.
As with other types of loans, you pay a lot more interest than principal in the early years, so you're paying off what you actually owe much more slowly in a seven-year loan. \"There's so much interest front-loaded in that,\" says Whitmire.
Seven-year car loans are financially dangerous because cars depreciate in value the moment you drive off the lot. \"You're waging this battle against depreciation because basically you're paying off a loan while the car drops in value,\" says Reed.
One big risk is that you might need to sell the car well before seven years. You might lose your job, or you have a kid, or a third kid and need a minivan. When you go to sell that car on a seven-year loan, you're likely going to find out that you owe thousands of dollars more than the car is actually worth.
A lot of people could apparently use this advice. According to industry data, 32% of new car buyers with a trade-in are rolling over about $5,000 in negative equity into their next loan when they buy a new car.
\"We're actually living in a golden age of used cars,\" says Reed. \"I mean, the reliability of used cars is remarkable these days.\" He says there is an endless river of cars coming off three-year leases that are in very good shape. And even cars that are older than that are definitely worth considering.
\"You know, people are buying good used cars at a hundred thousand miles and driving them for another hundred thousand miles,\" says Reed. \"So I'm a big fan of buying a used car as a way to save money.\"
Even if you buy a slightly newer used car than the Raekers', the couple raises a great point. What else could you be spending that car payment money on And if you can cut in half what you might otherwise spend, that's a lot of extra money for your retirement account, your kids' college fund or whatever else you'd rather be doing with that money.
A car loan for a private sale can help you buy a car from an individual when you can't cover the purchase price upfront. When dealership cars aren't exactly what you're looking for, a private party auto loan allows you to expand your search.
This type of auto financing may also save you money, since an individual could sell the same vehicle for less money than a dealership. Here's what you'll want to know about how car loans for private sales work.
If the seller hasn't paid off their loan on the vehicle they're selling, your lender will first send the seller's lender enough money to pay off that loan. This important step will allow the seller's lender to release their lien on the vehicle so you can buy it with a clean title. Then, your lender will send any remaining amount to the seller. Your lender will become the new lien holder on the car's title until you pay off your loan.
Similar to financing a dealership vehicle, you'll be able to choose a loan repayment term that works for you. Terms from one year (12 months) to seven years (84 months) are available. Some lenders may not offer all of these terms (or at least, they may not advertise them). However, if you only need a 12-month loan and the shortest term you can find is 36 months, you can always repay the loan sooner. That said, check the loan's terms to make sure there's no prepayment penalty, a fee for paying off your loan early.
Many banks, credit unions, and online lenders offer financing to help people buy vehicles from private sellers.* You may want to expand your search to include national, regional, and local financial institutions because you never know where you might find the best deal on a car loan. Everyone is familiar with banks, but you might not know as much about credit unions or online lenders. You might be surprised to learn that some credit unions allow anyone to join in exchange for a small fee. You may also be eligible to join a credit union based on where you live or your employer. Online auto lenders are companies that don't have physical branches. You'll handle the entire application process online, and you can usually get help by phone or email if you need it.
A private party vehicle loan can be inexpensive, with interest rates that are competitive with new vehicle financing. However, rates can vary considerably among lenders, even for borrowers with excellent credit.
Lenders will qualify you for a private sale auto loan based on your credit history, financial profile and the vehicle you want to buy. These are the same criteria lenders use when you want to borrow money to buy a car from a dealer. There are multiple factors to be aware of:
Besides paying cash, a personal loan could provide the money you need to buy someone's car. Personal loans also have minimum amounts you can borrow. The minimums vary by lender and by state but can be as low as $500 or $1,000. An unsecured may have a higher interest rate than a private sale auto loan, which is secured by the car you're buying. \"Secured\" means the car is collateral for the loan; if you can't repay your loan, the the lender can take your car and sell it to get back the money you still owe.
Of course, another alternative is to buy a new or used dealership vehicle by financing through the dealership or on your own. Dealership vehicles are sometimes more affordable than people expect, especially during promotions and if you have excellent credit.
First you must choose between buying a new car and buying a used car. A new car may cost more but will come with a longer warranty and no history of abuse or neglect. However, new cars depreciate (lose value) almost immediately when they leave the new car lot, which means that if you can find a well-cared-for used car, it might be a good bargain.
Consider the price of the car. This sounds obvious, but car dealers, new or used, may tempt you with a low monthly payment. You should be sure to look at the total price of the car, including interest.
Don't just assume you will finance through the dealer. Sometimes, you can get better financing from your bank or credit union. You should also check your credit score before you go shopping as this can affect the terms such as the interest rate you are offered. By shopping around, you may be able to negotiate a better deal. Note that Texas law sets maximum interest rates for financing used cars. The rates vary according to the age of the car and the amount owed on it.
All used car dealers are required by federal law to tell buyers whether a used car is being sold with or without a warranty. Dealers must clearly display this information on a side window of each used car. This buyer's guide, or window form, should state either:
The law prohibits rolling back or changing the number of miles on an odometer. Texas law requires the seller of any used vehicle to state on the title assignment the total number of miles the vehicle has traveled. Make sure you get a copy of the odometer statement when you sign the contract.
Whether you select an auto loan or personal loan, sticking to your budget is key. To help determine your approximate repayments costs try using an online personal loan calculator for peace of mind and use Credible to see what rates you qualify for.
Don't be intimidated the next time you walk onto a used car lot--gain confidence with education. Arm yourself with the knowledge of what kind of car you need, new or used, as well as the price range you want and how much you can qualify to borrow.
After signing in to your account via online banking or the mobile app, you can apply for your auto loan in just a few minutes. There's no fee to apply, and most decisions are instant. In cases where applications require a more detailed review, we'll send you an email and/or a text. You can also apply over the phone at 1-888-842-6328 or at your local branch.
Credit and collateral subject to approval. Rates subject to change and are based on creditworthiness, so your rate may differ. Rate only available for new vehicle loans with terms of up to 36-months. Other rates available for longer term new vehicle loans and for used vehicles and late model used vehicles. 59ce067264