1. Don’t Use One!
At least until you have done your homework. A lot of people go straight to a car loan calculator because it provides instant answers as to how much a car loan might cost you.
The problem is that this figure can be quite misleading, because there are a number of factors you ought to check out first before using any calculator to let you know how much you are going to have to pay.
These are set out below and although they will probably require a bit of research, will most likely end up saving you a significant amount of money.
Most new cars come with what is known as an MSRP, which stands for a manufacturer suggested retail price, commonly known as a sticker price. This is the recommended price for the vehicle set by the manufacturer, also referred to as a list price.
This price is always negotiable, sometimes for quite significant amounts. This means that you can end up paying significantly less in terms of actual price than you might otherwise think. What is important to bear in mind is that there are other factors that affect the cost of the vehicle as well which need to be taken into account.
The MSRP can also be negotiated significantly if you are thinking of leasing a vehicle, which many people do not appreciate or realise.
3. Down Payment
The down payment is effectively the deposit that you will agree to put on the vehicle. This obviously reduces the amount that you need to borrow, and subsequent repayment costs.
People normally think that the size of a down payment is determined by your credit score, in fact you can decide any size of down payment yourself. If you have significant savings, this can be a way of reducing costs. Equally if you are able to take advantage of a zero rate or low rate of interest, it may make more sense to have a smaller down payment and benefit from savings through a low interest rate.
4. Trade in Value
This many people will have an existing car that they want to sell or trade in against a newer one. If you trade a vehicle against another one with an auto dealer, you are likely to get significantly less in terms of cash than if you were to sell it privately. Trading a car in against a new model is primarily done because it is easier. Bear in mind, that it can also blur the line as to what type of discount you are getting on the new model.
5. Sales Tax
Whether you buy the lease a vehicle it is likely that some type of sales tax is likely to apply. It is worth finding out the cost of this when deciding what type of vehicle to buy.
Some vehicles may have a lower tax if you choose a hybrid version, or an electric car, or a car with certain types of low emissions.
6 .Interest Rate
Most people are aware of what interest rates all and how they work with regard to car loans. What people may not realise is that they can negotiate an interest rate, in the same way that they can negotiate regarding the price of the vehicle. When a finance company or credit broker make an offer of finance, it is in many ways their opening offer.
They will want your business, especially if you have good credit. This means that in many ways they are likely to able to be more flexible or negotiate than their original offer may imply.
In any event, it is worth trying to negotiate a lower rate of interest, either through direct negotiation or by offering a higher down payment or a longer period of time for the loan is valid.
7. Loan Term
The loan term is simply the number of months that the loan is completed to work over.
Many people go for a longer loan period because it reduces their monthly repayment costs.
Other people go for a shorter loan term because although it has higher monthly repayment costs there is a lower overall cost in terms of interest charges.
On balance it really depends which is more important for the individual, to have lower monthly repayment costs or a cheaper overall loan.
8. Dealer Offers
Virtually all dealerships of all manufacturers will make offers on their vehicles. It is a standard sales practice, and can have significant benefits for customers, but can also be quite confusing at times.
Dealership offers can be done on a national basis, on a local basis or both. Offers can relate to certain vehicles, low or zero interest rates, pre-approved customers, categories of customers such as military and students and can apply at certain times of year as well.
Unpicking these offers can be tricky, especially if they are based on the MSRP of the vehicle. However it is worth understanding the intent behind them, and using that to your advantage when negotiating the price and terms and conditions of the loan.
9. Buying Online
Most car dealers have an Internet sales department. This may be a specific department or integrated as part of their overall sales team. In any event they expect a large number of customers to effectively do a lot of the negotiating online, as well as by phone before they actually physically visit the showroom.
That is a very simple reason for this.
It is possible nowadays most customers to get a fair idea of what they should pay for a vehicle by way of research into areas such as price, trade in values, credit scores etc.
What this means in reality is that a customer has a very strong bargaining position in the way that they never had pre-Internet. Being able to negotiate online and on the phone puts the customer in a much stronger position as they can either help the phone or click through to another website.
A car manufacturer and dealership will recognise the power of this, and should be open to being a lot more flexible around all the areas of price and terms and conditions and they would be otherwise.
10. Credit Score
Most people are likely to be aware of what a credit score is.
They may not realise that they should be entitled to a free copy of their credit report at least once a year, which gives a breakdown of how their credit score is arrived at. They may also be all to obtain a copy of what their credit score actually is, although there is normally a charge for this.
Understanding how your credit score is made up by way of what information is contained in your credit report is crucial before approaching any loan or finance company.
Anyone offering you a loan will base it upon a credit score that is determined by the information in your credit report.
If that information is incorrect or out of date it will have a detrimental effect on any loan offer made it to you.
For that reason, it is crucial to check the information and make sure it is accurate. If it is not the credit bureau has an obligation to correct it, and they are normally fairly good at doing this.
11. Now Use The Calculator
Using a car loan calculator can give you a realistic sense of what you should be paying for a car loan. It can only really do this when you put in information that is likely to be realistic.
This information relates to the price of the vehicle, the size of a down payment, the car’s trade-in value, any sales tax that may apply, either local or national, any rebate or offer from a dealership and the length or term of the car loan.