Before driving a car off the lot, you must first pay for the vehicle. Unless you have the funds in cash, pay for the car with credit. Using credit to buy a car means taking out a loan. You pay a one-time down payment and then pay monthly payments for a specific amount of time. Once the monthly payments are complete, you own the car. Using credit to pay for a car does not include your annual registration fee, insurance or maintenance costs.
Use a car loan calculator to figure out potential monthly payments, such as the one at edmunds.com (see Resources). Alternately, run a rough estimate yourself. Add the estimated cost of the car, title and registration and estimated sales tax, then subtract any potential rebates or incentives to calculate your total cost. If you have a trade-in, subtract the potential value from your total, as well as the down payment you've budgeted. This provides your total amount to finance. The term of the loan, which is the number of payments you make, and the interest rate give you a sense of how much you'll pay each month.
Check car loan rates with local lenders. While you can typically finance a car during the buying process at the auto dealership, the rate offered may not be the most competitive. Check with a credit union or bank with which you have an existing relationship, such as a checking or savings account.
Set the down payment. The down payment is the amount you pay to start the loan. It typically also includes the registration fee for the car, dealer fees and a percentage of the purchase price for your vehicle. While you can negotiate many of these items, the down payment must fit your budget for the loan to make sense in your overall financial picture.
Negotiate the loan rate. The loan rate is the amount of interest you pay to borrow the money that buys the car. Loan rates vary based on whether the car is new or used, your credit score and the institution with which you finance. Having independent financing options available as well as a strong credit score puts you in a strong negotiating position.
Agree to the monthly payment. This amount is the monthly payment you make to pay off the car. The loan rate and the number of payments drive the amount of the payment. Don't be fooled by low payments, however. Low payments may make the car seem more affordable, but the amount of interest you're paying increases the overall cost of the loan. Get a 48-month loan at a low rate to ensure you're not buying a car you cannot really afford, recommends the advisors at Bankrate.com.
Sign the loan documents. Whether you're walking into a dealership with your financing set or using the financing to negotiate better terms at the dealership, the loan requires legal documentation. After you've come home with the car, the institution that funded the loan sends information about the loan. The information typically includes payment coupons or statements to remind you of the due date and amount of your monthly payment. You can also arrange for online or automatic payments.
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