When
looking for financing for a new car you can either go with what the dealer
offers you or you can secure your own financing through a bank, credit
union or other lender.
Deciding which option to choose can
be a tough decision. Manufacturers and dealers offer a wide variety of
promotional finance deals. A few years ago, a car company even offered a
loan with no payments for the first year. Sounds great? After the first
year the payments were jacked up to cover the payments that you didn't
make.
Consider any special deals as just a
starting point in finding financing.
A really low interest rate may be
attractive, but keep in mind that the interest rate is just one of the
factors that go into the overall amount you will pay for your new vehicle.
Interest is a large factor. It can be calculated in several ways; however,
most lenders use the annual percentage rate, or APR.
A low interest rate may not save you money in the
long run if the other numbers involved are inflated. The same thing is
true of other rebates and incentives.
So you have to decide what the
better deal is. Should you take a low financing rate or the $1,000 rebate?
It all depends.
First, everyone can get a
manufacturer's rebate. Other financing deals are often very dependant on
your high credit score.
For example, you have to choose
between a 2.9% financing on a four-year, $15,000 loan and an 8% interest
rate on a four-year loan with a $1,000 rebate.
Start by taking half the amount of
the loan and multiply it by the difference between the two financing
rates. This give you and idea of how much money will be save each year
with the cheaper financing rate. To make it simpler, you can just round
off the 2.9% interest rate to 3%.
For this example, you would multiply
7,500 by .05 (5%, the difference between the two rates) for a total of
$375.
Then multiply that by the number of
years in the loan, four.
You will have a savings of $1,500 by
taking the four-year loan at the lower interest rate. Because the rebate
is $1,000, you would save an additional $500 by choosing the
low-rate.
People with great credit ratings can
often take both the rebate from the dealer and getting a low rate from an
outside lender.
The best way to buy a car is to shop
for financing first. Internet lenders have become very competitive in the
last few years and will offer very good rates to those with good credit.
You can be approved for the total amount to be financed before you go
shopping, then all you have to do is concentrate on the price.
Remember that the dealer is just the
middleman of financing. The dealer will often bump up the rate of a bank
or finance company that they do business with. You could do better on your
own.
