5 Tips for Financing Your First New Car

Buying a car is usually one of the most important and expensive transactions the common person makes in their lifetime. About 70 percent of people need to finance their cars. It pays to be knowledgeable and prepared when you apply for an auto loan. By making the right decisions with your financing, you can have an affordable monthly payment without paying too much in interest. Keep the following tips in mind as you explore your financing options.

Know Your Credit Score and Be Realistic

Your credit score is one of the most important aspects of your auto loan. Its strongest impact is on your interest rate. While dealers routinely advertise very low rates like 1–3 percent or special financing deals like no interest for six months, only the best-qualified buyers will be able to secure these deals. In general, only those with a credit score higher than 700 will be able to secure the best financing options or deals. A low score will make your loan more expensive and may preclude you from higher loan amounts.
It is important to be realistic about how nice of a car you can afford, which may be different from how much car you are willing to pay for. In general, you shouldn't pay more than 25 percent of your monthly income in vehicle expenses. This includes fuel costs, insurance and repairs. In reality, most lenders won't qualify someone for an auto loan with a monthly payment much higher than 20 percent of their income. Your credit score impacts this decision, too. Borrowers with higher scores will have more flexibility and may be able to secure loans that are a higher percentage of income.
As you are shopping around for models. Be mindful of how much they cost and what you can afford. Don't forget to include things like sales tax, licensing fees and dealership fees that will be added to the sticker price.

Come to the Dealership Approved for Financing

In general, most borrowers are going to get the worst financing deal from the dealership. This is because the dealership and sales person make a commission off of the interest for the loans they secure. The more interest they can charge, the more money they will make. Banks may offer lower interest options, and credit unions generally offer the best terms. You can get approved for these loans before ever going to the dealership, which means you don't have to hassle through their loan approval process.
The downside to this is that financial institutions may be stricter about what they are willing to offer. They may not approve a borrower for amounts as large as the dealership might, and they may be stricter about proof of income and other paperwork. For example, a dealership may accept bank statements as proof of income whereas a credit union would require official tax returns.

Keep the Term Short

Many buyers get fixated on the monthly payment. Car lenders understand this and will work with a buyer to give them the payment they want. The downside to this is that low monthly payments usually come with the catch of higher interest. Your monthly payment may be less, but you will end up paying more in the long run. It is best to have a term of about 36 months if you can afford the higher payment, but always keep the term as short as you can afford.

Put 20 Percent Down

Even if a dealer offers to finance the car with no money down, you should put down at least 20 percent. There are several reasons for this. First, it helps decrease your loan interest and will lower your monthly payments while still allowing you to have a shorter term. A decent down payment also protects you from loss in the unfortunate event your new car is totaled. New cars depreciate about 15 to 20 percent the moment they are purchased. This means that an insurance company is only likely to pay out 80 to 90 percent of the car's value even if it is totaled the day you buy it. Putting the money down helps ensure that you are not upside down on your loan on the first day.

Read the Terms of Your Loan

It may sound silly, but the vast majority of car buyers, especially first-time buyers, don't bother to read all of the terms of their loan. This can be a very costly mistake. Once you have signed yourself into the contract there is little use coming back and complaining that things weren't as agreed. Your only option at that point is to refinance. It is common for dealers to put different terms in the loan than what was agreed upon verbally. This is also the time for you to spot and remove unnecessary additions and dealer charges. Dealers are notorious for sneaking this small added expenses into the loan and assuming that most buyers will never notice them.
When buying your car at a St. George Kia dealership or anywhere else, remember the monthly payment is one of the most obvious and thus the least important things for you to consider when looking over your documents. Don't be afraid to demand that something be removed or renegotiated before you sign. Until your signature is on that line, you are free to walk away, and all the cards are in your hand. Most dealers won't want to lose a sale over small things. You just have to be willing to call them on it.