1. Check Your Credit Score
Oftentimes the deciding factor for what car options you have access to is your credit rating. If you have good credit and a high enough income, then your car options open up for you.
However, you can still get a car loan even if your credit score is bad.
Having bad credit will often increase your payment and interest rate with any given lender, but going with a used vehicle inherently has some benefits that outweigh the negatives:
- Lower down payments
- Better APR
- Good for rebuilding credit score
- Lower down payment
Check your credit account online with your bank or request a credit report to know where you stand before making an application for a used car loan.
2. Bigger Down Payments
In most cases, having more cash for a down payment is favourable because it decreases the amount of principal (total amount owed) that you pay interest on, reducing the amount of interest you have paid over the loan term. Here are some other ways of reducing the amount of interest you pay on your vehicle:
- Keep the financing term short as to not pay more interest over time
- Pay for service charges in cash (otherwise, they will be put onto your loan)
- Time your purchase: applying for a loan when rates are lowest
However, there are many zero down payment options available with reputable lenders that will help get you into the car of your choosing, with affordable payment terms to keep you on top.
3. Don’t Blow Your Savings
Payments in life come big and often, so fronting a large sum of cash to pay off your used vehicle may seem like a good idea, but it could leave you high and dry in other areas of your life. By financing your used vehicle:
- You have the chance to build your credit
- Reduce financial overload
- Access to better vehicle options outside of your cash budget
Financing exists for a reason, and reducing large lump-sum payments in life is an optimal strategy when it comes to staying on top of your financial well-being. Whether you’re a multi-million dollar company or just someone trying to be smart with their money, it’s always better to keep more of your money in your control.
4. Know Your Contract
Depending on what lender you end up going with, you can run into many problems found in your contract’s fine print. It is important to take a good look at your responsibilities and those of the lender in your contract, as well as a few things to make your life a little easier when you finally ink it:
- Educate yourself on loan finance principles before walking in
- If you don’t understand, ask questions
- Don’t sign if you don’t know
- Fees are negotiable
- Leave nothing “off-the-record” — always get things in writing
An area that causes the most confusion and grief after signing is the additional packages clause. Make sure you understand what you are buying and whether or not it is right for you. Oftentimes these additional packages don’t fit the average buyer’s needs and should be avoided unless they provide value to your situation.