Know
your auto loan interest rate before you buy
By
Jake Rustenhoven
Contributing Author
So you're ready to buy
that new car you've had your eye on, and you
are going to take advantage of that "2.9% financing" offer
that your favorite auto maker has been advertising
on the vehicle of your choice. You have good
credit, no problem being automatically approved
for that special financing right? Not so fast!
I experienced this exact scenario recently and
almost walked away paying nearly TWICE the amount
of interest I had initially planned, and it had
nothing to do with my credit report! Luckily
I was paying attention when "the finance guy" wasn't.
Here's what happened...
Staying informed about
dealer incentives can save you thousands on
interest
I had just finished
haggling with the sales person over the price
of my new vehicle and the amount they were giving
my on my trade-in, I was happy with the deal
and was looking forward to getting the financing
I needed and driving home while taking in that
new car smell on the way. The salesman walked
me to "the
finance guy's" office and we shook hands, then
I sat down. I had previously submitted my finance
application, so he already had all my information.
He went through the normal routine for a finance
guy and then we were getting ready to sign the
papers. But I noticed that he never mentioned
what the interest rate on the loan was for sure.
That's when I asked "what's the interest rate
on this?" He quickly responded "I got you approved
at 7.6% from XYZ Bank".
My jaw just about dropped
to the floor at that point! I check my credit
report and credit score on a regular basis, and
I did so a couple weeks before I went in to buy
this car, so I knew my credit would be sufficient
to obtain the special financing that was available
to me. So I asked him about the special low interest
financing and why he didn't have me approved
for that instead (3.9% for up to 60 months from
the auto maker's own financing company is the
offer I was expecting), he looked a little perplexed
for a second, then turned back to his computer
and started working on that. After a couple minutes
he told me that he got me approved for 3.9% for
60 months and everything looked good.
Ok great, but what if
I wouldn't have been paying attention and just
assumed they already had me approved for the
3.9% financing, and just went ahead and signed
the papers? Well in my case it turns out that
I would've paid over $3,200 MORE in interest
on that same loan if I would've continued with
the initial 7.6% financing. That's over 3 grand
that I saved just by paying attention and staying
informed when the finance guy didn't even know
what was going on!
How did I know when
they didn't?
I simply researched the
car maker's incentives and rebates they were
offering at the time, before I went in to actually
purchase the vehicle. Normally they will have
that information right on their websites like automobiles.honda.com, www.chevrolet.com etc., and they also list
available incentives and rebates on www.edmunds.com as well. Sometimes they advertise
it on TV/Radio and other times they don't (in
this case, at that time, they didn't have any
TV advertisements for the special financing).
Why the finance guy at the dealership didn't
keep himself informed is beyond me, maybe it
was a brand new offer that he wasn't aware of
yet, who knows. What I do know is that by doing
the research myself first and paying attention
to what was going on at the dealership, I saved
myself a good chunk of money in interest over
the life of the loan.
Never assume, do your
own research
As I mentioned, I always
do my research before making a big purchase like
a new car. After I learn all I can about what
I intend on buying, I think it's amusing to go
into the dealership and ask the salesman some
questions that I already know the answer to,
just to see if they know what they're talking
about. A lot of the time I know more about the
car or truck than they do! Never assume the sales
people or finance people will know everything
that is going on, be sure to "get the facts",
stay informed and don't just rely on the information
the sales people give you. Especially when it
comes to special financing offers and incentives
that can save you big money on interest, if you
plan to finance the vehicle.
Make sure you get what
you expected before making the purchase
If you find yourself in
the same situation where you were expecting a
super low interest rate on your auto loan, once
you get to the finance guy at the dealership,
be sure to ask if that interest rate applies
to your loan before you sign any papers. If not,
ask why. If your credit is not good enough to
obtain the low interest loan, find out why and
do what you can to fix it first (Tip, you can
obtain your free credit score along with a free credit report to help you
figure this out). Even if you have to finance
the vehicle for a shorter period of time (say
4 years instead of 5), and pay a little more
on the monthly payment, (as long as you can afford
the payment) your savings in the end will make
it well worth the effort.
Just imagine how many
people went in before me and financed a new vehicle
only to pay almost 8% interest on their loan,
when they could've been paying 3.9% had they
just known what I knew! Do yourself and your
wallet a favor, don't be one of those people,
keep yourself informed.
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