Auto Loan Tips: Save Thousands on Your Car

Before shopping for a car, understand these key loan components: Principal The amount you borrow, which is the vehicle price minus your down payment and trade-in value. Interest Rate (APR) The annual cost of borrowing, expressed as a percentage. Lower is better. Rates vary based on credit score, loan term, and whether the car is new or used. Loan Term The repayment period, typically 36, 48, 60, 72, or 84 months. Longer terms mean lower monthly payments but more total interest paid. Monthly Payment Your fixed payment amount, which covers both principal and interest. This is what most buyers focus on, but it shouldn't be your only consideration. Total Cost of Loan The sum of all payments plus fees. This is what you should really compare when evaluating loan offers.

Your credit score significantly impacts the interest rate you'll receive: Typical rate ranges by credit score (2024): • Excellent (750+): 4.5% - 6.5% • Good (700-749): 6.5% - 9% • Fair (650-699): 9% - 13% • Poor (below 650): 13% - 20%+ The difference is substantial. On a $30,000 loan over 60 months: • At 5% APR: Total interest = $3,968 • At 15% APR: Total interest = $12,748 That's nearly $9,000 difference! Before car shopping: • Check your credit report for errors • Pay down existing debt to lower utilization • Avoid opening new credit accounts • Consider waiting 6-12 months if your score is borderline

Loan term is crucial for total cost: $30,000 loan at 6% APR: • 48 months: $704/month, $3,790 total interest • 60 months: $580/month, $4,800 total interest • 72 months: $497/month, $5,776 total interest • 84 months: $438/month, $6,779 total interest Shorter terms save money but require higher payments. The sweet spot for most buyers: 48-60 months for new cars • Balances affordable payments with reasonable interest costs • Loan ends before major repairs typically needed • Maintains positive equity throughout loan 36-48 months for used cars • Used cars depreciate faster initially • Shorter term prevents owing more than the car is worth • Usually higher rates on used cars make term even more important

Shop multiple lenders before visiting the dealership: 1. Credit Unions Often offer the lowest rates, sometimes 1-2% below banks. Membership required but usually easy to join. 2. Banks Competitive rates for existing customers. Relationship discounts may apply. 3. Online Lenders Convenient comparison shopping. Can get pre-approved quickly from home. 4. Dealership Financing Convenient but often not the best rate. However, manufacturers sometimes offer promotional 0% or low-rate financing on specific models. Pro tip: Get pre-approved before visiting dealerships • Know your rate before negotiating • Gives you leverage with dealer financing • Pre-approval usually valid for 30-60 days • Shopping multiple lenders within 14 days counts as one credit inquiry

Smart negotiation can save thousands: Negotiate the total price, not monthly payment Dealers can manipulate monthly payments by extending terms. Focus on out-the-door price. Get quotes from multiple dealers Use competing quotes to negotiate lower prices. Email or text is effective for avoiding high-pressure tactics. Time your purchase • End of month/quarter (salespeople have quotas) • End of model year (clearing inventory) • Holiday weekends (promotional pricing) Don't reveal your payment budget Saying "I can afford $400/month" lets dealers maximize profit within that constraint. Be willing to walk away The most powerful negotiation tool. Dealers will often call back with better offers. Consider the total deal • Vehicle price • Trade-in value (negotiate separately) • Financing terms • Extended warranties and add-ons (often overpriced)

1. Focusing only on monthly payment A lower payment with a longer term often costs more overall. 2. Skipping the down payment No money down means higher monthly payments and risk of being "underwater" (owing more than the car's worth). 3. Not reading the fine print • Prepayment penalties • Balloon payments • Variable rates • Mandatory arbitration clauses 4. Rolling negative equity into new loan If you owe more than your trade-in is worth, that amount gets added to your new loan, starting you underwater. 5. Buying more car than you can afford Total car expenses (payment, insurance, gas, maintenance) shouldn't exceed 15-20% of take-home pay. 6. Dealer add-ons • Extended warranties (often marked up 100%+) • Paint protection, fabric protection (usually unnecessary) • GAP insurance (cheaper through your auto insurer) • VIN etching (costs dealers $50, charged at $300+)