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Auto Loan, Reviews

The Best Auto Loans: 2018 New & Used Car Loan Rates

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Disclosure : By clicking “See Offers” you’ll be directed to our parent company, LendingTree. You may or may not be matched with the specific lender you clicked on, but up to five different lenders based on your creditworthiness.

The best auto loan for you depends on your priorities, but two common goals are to get the most competitive rate and the lowest monthly payment. That’s why longer-term loans are so popular right now, with more people stretching out new and used car loans over 60 months or more. Despite that, new and used car payments hit an all-time high in 2017, meaning that people are spending more than ever on their vehicle purchases. That’s why MagnifyMoney has compiled a list of the best auto loans in 2018. We know that with rising rates, you need as much help as you can get finding the best rates to secure the vehicle you want and need.

Overview of the best auto loans in 2018

Company name

Best for

Loan types offered

 

LendingTree

Comparison shopping auto loan rates - LendingTree is not a lender.

New, used, refinance, lease-buyout

SEE OFFERS Secured

on LendingTree’s secure website

LendingTree is our parent company

LightStream

Car buyers with good or excellent credit

New, used, refinance, lease-buyout

APPLY NOW Secured

on Lightstream’s secure website

Capital One

Car buyers with fair or poor credit

New, used, refinance

SEE OFFERS Secured

on LendingTree’s secure website

Carvana Auto Loan

Buying a used car online

Used

SEE OFFERS Secured

on LendingTree’s secure website

How we picked the best auto loan rates

Using information from LendingTree, we compiled auto loan data over a six month period (August 2017 through January 2018) spanning across 22 auto lenders. We analyzed the loan data by applicant credit tier, and whether the loans were to purchase a used or new car to determine 1) the lenders consumers chose most often, and 2) the lowest average APR offered by the lender.

A closer look at the best new and used auto loans

Start with LendingTree

With LendingTree, you can fill out one short online form, and there are dozens of lenders ready to compete for your business. Upon completing the form, you can see real interest rates and approval information instantly. Some auto lenders will do a hard pull on your credit and this is common with auto lending. It’s important to remember, multiple hard pulls will only count as one pull, so the best strategy is to have all your hard pulls done at one time.

LendingTree
APR

As low as
3.09%

Terms

24 To 84

months

Fees

Varies

SEE OFFERS Secured

on LendingTree’s secure website

LendingTree is our parent company. LendingTree is unique in that they allow you to compare multiple, auto loan offers within minutes. Everything is done online. LendingTree is not a lender, but their service connects you with up to five offers from auto loan lenders based on your creditworthiness.

 

Where people with good credit (680+) get the lowest rates

LightStream

LightStream is the online consumer lending division of SunTrust Bank. LightStream seeks to make the online lending process easy, so you may apply, be approved, sign your loan agreement and receive your funds all through your computer or mobile device — no papers to fill out or sign.

Why we chose Lightstream
Out of the lenders compared, borrowers with good and excellent credit were most likely to choose a loan with LightStream and receive the lowest APR. You can read our full LightStream review here.

New auto loan product details

  • APR: See table below
  • Terms offered: 24 – 84months
  • Loan amounts: $5,000 - $100,000

Lightstream New Auto Loan APRs

Loan Amount

Loan Term (months) *

24 - 36

37 - 48

49 - 60

61 - 72

73 - 84

$5,000 to $9,999

4.24% - 6.74%

5.09% - 7.34%

5.29% - 7.54%

6.19% - 8.19%

6.79% - 8.34%

$10,000 to $24,999

3.34% - 6.44%

3.69% - 6.69%

3.69% - 6.69%

4.54% - 7.54%

5.14% - 6.94%

$25,000 to $49,999

3.84% - 6.44%

3.94% - 6.69%

3.94% - 6.69%

4.79% - 7.54%

5.39% - 8.14%

$50,000 to $100,000

3.84% - 6.44%

3.94% - 6.69%

3.94% - 6.69%

4.59% - 7.34%

5.29% - 8.04%

As of 11/05/18. Includes a 0.50 point discount for autopay. Exact rates depend on your credit profile.

Used auto loan product details

  • APR: See table below.
  • Terms offered: 24 – 72 months
  • Loan Amounts: $5,000 - $100,000

LightStream Used Auto Loan APRs

Loan Amount

Loan Term (months) *

24 - 36

37 - 48

49 - 60

61 - 72

$5,000 to $9,999

4.44% - 6.94%

5.29% - 7.54%

5.49% - 7.74%

6.19% - 8.19%

$10,000 to $24,999

3.34% - 5.94%

3.94% - 6.79%

3.94% - 6.79%

4.79% - 7.29%

$25,000 to $49,999

3.84% - 5.94%

3.94% - 6.79%

3.94% - 6.79%

4.79% - 7.29%

$50,000 to $100,000

3.84% - 5.94%

3.94% - 6.44%

3.94% - 6.44%

4.59% - 7.09%

As of 11/05/18. Includes a 0.50 point discount for autopay. Exact rates are dependent on your credit profile and for purchases made from dealer. 

What we like

  • Fixed rate, simple interest fully amortizing installment loans. This means you won’t pay interest on your interest, and if you follow the payment schedule, your loan will be fully paid off at the end of the term.
  • No fees or prepayment penalties
  • No restrictions on the vehicles year, make, model or mileage
  • If you’re not 100% satisfied, Lightstream will pay you $100 (conditions apply)

Where it may fall short

  • Loans may not be used for a cash-out refinance
  • Secured loans may not be used for commercial vehicles
  • Vehicle must be classified as automobile, sport-utility vehicle (SUV), light-duty truck, passenger or conversion van
  • No phone support for customer service. Everything is handled by email

How to apply
Before you apply, keep in mind that you’ll need to:

  • Have good credit
  • Have sufficient income and assets
  • Agree to electronic records and signatures

Applying is done entirely online. You’ll provide:

  • Personal information. Name, address, phone, Social Security number, driver’s license, etc.
  • Employment information. Employer name and address, income and other financial assets
  • Loan information. Loan purpose, loan amount and term
  • Security information. Create a username and password
LightStream

APPLY NOW Secured

on Lightstream’s secure website

Where people with fair (620-679) & bad credit (500-619) get the lowest rates

Capital One Auto Finance

Capital One is a Fortune 500 company and a trusted name in banking and other financial services. In the fourth quarter of 2017, Capital One originated $6.215 billion worth of auto loans, making it one of the top five U.S. banks offering auto loans.

Why we chose Capital One
The most borrowers with fair and bad credit chose a loan with Capital One, and it came in second in terms of lowest average APR.

New auto loan product details

  • APR: See table below
  • Terms offered: 36 – 72 months
  • Loan Amounts: $4,000 - $40,000

Capital One new auto loan APRs

Credit

Loan Term (months) *

36

48

60

72

Rebuilding

7.73%

7.73%

7.73%

10.08%

Average

4.29%

4.93%

4.93%

6.22%

Excellent

3.99%

3.99%

3.99%

3.99%

As of 11/05/18

Used auto loan product details

  • APR: See table below
  • Terms offered: 36 – 72 months
  • Loan Amounts: $4,000 - $40,000

Capital One used auto loan APRs

Credit

Loan Term (months) *

36

48

60

72

Rebuilding

9.13%

12.43%

12.43%

13.78%

Average

5.90%

7.22%

7.22%

8.86%

Excellent

4.33%

4.40%

4.40%

5.15%

As of 11/05/18

What we like

  • Easy to pre-qualify online without a hard inquiry on your credit
  • Minimum monthly income required is $1,500 or $1,800, depending on your credit
  • 12,000 auto dealers work with Capital One

Where it may fall short

  • The best rates require excellent credit with 20% down on the vehicle
  • Vehicles must be 2006 or newer
  • Vehicles must have less than 120,000 miles
  • Dealers may charge additional fees, including document fees, dealer preparation fees and delivery charges
  • Maximum loan amount may not cover the cost of the vehicle you desire

How to apply
Apply using Capital One’s Auto Navigator. Enter your personal information including your Social Security number to get pre-qualified for an auto loan without affecting your credit. Then take your financing certificate to the dealership to shop for cars and make a selection. Once you’ve selected a vehicle, the dealer will have you fill out a credit application and you’ll finalize the paperwork for your vehicle purchase with the dealer.

Capital One

SEE OFFERS Secured

on LendingTree’s secure website

Carvana

Carvana specializes in helping you shop for a car online. It uses things such as 360-degree photos, free vehicle history reports, details and specs, ratings and reviews to provide you with the maximum amount of information.

Why we chose them
We looked at the three used auto lenders chosen most often in each credit tier, and Carvana was the only lender in the top three in every tier. That’s why we chose Carvana, even though other lenders offered lower average APRs on used auto loans.

Product details – Used auto loans only

  • APR: APR depends on credit history, vehicle type and down payment.
  • Terms offered: Up to 72 months.
  • Minimum loan amount: None
  • Maximum loan amount: Any amount, as long as it’s a vehicle listed on the Carvana website.

What we like

  • High level of detail on vehicles makes online shopping easy
  • Online application personalizes your shopping experience and doesn’t require a hard pull on your credit
  • You can return the vehicle within seven days and get your money back (Make sure you’re familiar with the limits on this policy before you buy)
  • All vehicles are certified with a 150-point inspection

Where it may fall short

  • Only available for used vehicles
  • Carvana is a car dealership, and you must select a vehicle through their website

Online experience
Carvana provides a lot of information about each vehicle. You won’t have to visit other sites to find specs or read reviews

When you fill out the online application, you’ll see a breakdown of your monthly payment, minimum required down payment and your APR, making your shopping experience truly personalized.
How to apply
You may get pre-qualified with Carvana without a hard pull on your credit by filling out the online application. After you complete it, you may start shopping for a used vehicle, and your payment, down payment and APR will be displayed for each vehicle. Keep in mind, with Carvana, you must purchase a vehicle in their inventory.

Carvana

SEE OFFERS Secured

on LendingTree’s secure website

Understanding the auto loans process

How do auto loans work?

For the lenders we detailed above, you may apply for a loan online and receive personalized loan rates without a hard pull to your credit. So while you don’t see rate tables on certain lender websites, don’t be discouraged. If you’re serious, just fill out an application to see what you may qualify for.

Once you’ve completed the initial application, you’ll be able to shop for a vehicle knowing which type of financing you’ll likely qualify for.

Once you’ve selected a vehicle, you’ll need to submit a full application for the loan. This can be done online or with a dealer, if you’re working with one. Once again, most lenders are streamlining this process online, so for the lenders we discussed on this page, you may upload your documents using a computer or mobile device.

Once you’ve purchased the vehicle and completed your loan documents, you’ll just need to make payments. Making payments has moved online as well, and many lenders offer apps to help you manage your payments and loan information using your mobile device.

Tips when shopping for car loans

Here are some tips to help you avoid common mistakes and shop confidently for a car loan.

  • Set a budget. Everyone says it, but it’s not always easy to do. If you aren’t keeping a budget, here’s how to start in four easy steps.
  • Know how much you can afford. MagnifyMoney suggests you keep your total car expense less than 10% of your monthly budget. This is part of the 20/4/10 rule, which also says you should put down at least 20% and choose a maximum loan term of four years.
  • Save for a down payment. The amount of your down payment is likely to affect the interest rate you receive when financing your vehicle. So saving for a larger payment will help save you money and putting more down will lower your monthly payment, too.
  • Check your credit. You’re entitled to a free copy of your credit report from each of the three major credit bureaus every 12 months, and it’s easy to get your free credit score from a variety of sources.
  • Consider a co-signer. If your credit score is low or you have a limited credit history that needs improvement, having a co-signer with good credit on your auto loan could significantly lower your interest rate.
  • Shop around. It’s smart to get multiple rate quotes, so you may compare loans.
  • Get pre-approved. Shopping for a vehicle doesn’t make a lot of sense if you don’t know how much money you’ll have to work with. Shoppers have many options for getting auto loan quotes without a hard inquiry on their credit, but if you’re serious about buying a car, doing all your loan shopping in a short period of time will minimize the potential impact on your credit score, if loan applications result in a hard pull.
  • Talk to local credit unions. While banks and online auto loan companies offer easy-to-use online tools, don’t forget to talk to your local credit union to see if it has a more competitive rate.
  • Beware of extra fees. Keep in mind you’ll need to pay state taxes and title fees. In addition, dealers may charge fees, including document fees, dealer preparation fees and delivery charges. These fees will affect your APR if you finance them into your loan.
  • Check your paperwork. Everyone makes mistakes. When you get the final copy of your auto loan, check to make sure you got everything you were promised and there are no extra fees.

How to apply for an auto loan

From choosing the right car to getting approved for financing, this article will walk you through the complete online car buying process.

When you apply for an auto loan, it will help to have your documentation ready. This will include proof of identity, proof of income, credit and banking history and proof of residence. If you’ve selected a vehicle, you also want that information, including VIN, mileage, year, make and model.

While many online lenders advertise the loan process as being quick, be prepared for roadblocks. Sometimes a lender may request additional information or take time to verify information, and that may delay the process.

Be proactive! Once you’ve started the auto loan process, the lender will walk you through what’s needed. But that doesn’t mean you have to wait for your lender to get back to you. If the loan process has stalled, make a call or send an email to your lender asking what’s needed. In many cases, you’ll have an online login that will allow you to see your loan status, or take the next step online.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Ralph Miller
Ralph Miller |

Ralph Miller is a writer at MagnifyMoney. You can email Ralph here

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Auto Loan

What to Bring When Buying a Car: 8 Documents to Have

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Disclosure : By clicking “See Offers” you’ll be directed to our parent company, LendingTree. You may or may not be matched with the specific lender you clicked on, but up to five different lenders based on your creditworthiness.

iStock

On top of the normal stress of buying a vehicle, there’s the aggravation that comes from not having all of the paperwork you might need. The last thing you want is to make more trips to the dealership. To help you save time, money and some sweat, we made a list to check off before you hit the lot.

1. Proof of identity

This one seems like a no-brainer and it often is. If you’re a U.S. citizen with a current (unexpired) driver’s license, you’re usually good to go. But if you want to or need to use other documents to buy a car, here’s what you could use depending on your situation.

U.S. citizens: Most federal and state-issued identification that includes a photo of you, such as passports and state ID cards, should suffice. Military ID badges, however, are not acceptable as proof of identity because making a photocopy of them is illegal.

Non-U.S. citizens: You’ll have to bring your passport and visa when buying a car. The passport serves as your identification document. The visa shows you are legally allowed to be in the U.S. for a period of time. If you want to finance a vehicle with a U.S. lender, the lender will want evidence that you are allowed to stay in the country for at least the entire duration of the loan. So if your U.S. work visa is for 60 months, but you want a loan for 72 months, the loan probably will not be approved. In this example, you might have to get a loan for a 60-month term or shorter, which may mean you need a less expensive car.

To prove that you may legally drive on public roads, you usually need an international driver’s permit or a local driver’s license.

Do you need a driver’s license? Technically you could buy a vehicle without a driver’s license, but you couldn’t legally drive it, get auto insurance for it (required by lenders if you are financing the car) or register it in your name. Generally, you must provide your driver’s license, not necessarily as proof of identity, but as proof you can legally drive. The dealership will require you show your license before you even take a vehicle on a test-drive.

There is, of course, the obvious loophole: if you’re not going to drive the vehicle, it isn’t an issue. If you are a cosigner for a person who does have a license and you’re not going to drive the vehicle at all, then you don’t have to worry about having your own driver’s license. A couple examples for this situation include a grandparent who can no longer drive but cosigns for a grandchild or a disabled person buying a vehicle that their caretaker will drive for them.

2. Proof of income

Not all lenders will require proof of income, but you’re more likely to need it if you have a new job or have multiple sources of income. They want to make sure you’ll be able to not only cover your new car payment but also still be able to make rent. How little or how much proof you’ll need to submit depends on how you get your income.

Proof of income for primary job(s). Perhaps the most convenient thing for you to take as proof of income for your primary job(s) is your tax form, your W-2 or W-4. If that’s not available, then what will probably suffice is three months of pay stubs. The pay stubs should show the total amount you’re paid before taxes and the total amount you actually receive (after taxes, benefits and any other deductions).

Proof of income if you’re self-employed. If you don’t have an employer-provided tax form or pay stubs because you work for yourself, or you’re a freelancer or a contractor, the best things to bring are your 1099 tax form and at least three months of personal bank statements showing income being deposited into your account. Any work contracts showing you will have gainful employment for a set time, such as a year-long contract to develop a website, could be useful as well.

Proof of income if you’re going to start a job. If you’re not employed yet or you’re changing jobs and want your potential lender to consider your future income as a reason you can afford the new car, then bring your job offer letter. It should show the employer’s name and contact information, your name, future start date, annual income and any bonuses being offered. Many lenders will want to verify the offer with the future employer. Many lenders require that this starting date is no more than 90 days out from when you sign the financing contract for the car.

Multiple sources of income. You do not have to prove every single source and amount of income you earn. You only have to report it if you want the lender to take this other income into consideration. For example, if you earn $30,000 a year from your job, but you also receive $10,000 a year from Social Security, alimony, pension, child support, stock dividends etc., that’s a lot of money that could help you afford your car payment.

The more you are able to make your loan payments, the less risky it is for the lender to lend you the money. This translates more likely getting a loan and having better loan term. So if you have a significant amount of income from other sources, consider including it in your auto loan application.

To prove these sources of income, you may have to provide a couple of different documents in addition to bank statements. The second type of documentation depends on the type of income source.

  • Social Security. The award letter from the government showing the amount you receive and how often you receive it.
  • Pension. A letter showing that you are to receive a specified amount from a pension fund managing company, the start date and for how long it will continue. It may be that it continues for the rest of your life or until you reach a certain age.
  • Interest and dividends. The issuer of these should provide an income statement showing how much and when you receive it.
  • Child support or alimony. A signed court order showing the amount that is to be paid to you and the dates you’re going to receive the payments.

If you have any questions specific to your situation, you could also ask the lender directly or a dealership finance manager.

3. Proof of residence

You’re most likely to need this if you recently moved. The address you provided on the loan application should be your residential address — where you actually live. Most lenders will not accept a P.O. box or a business address as your primary address.

The most commonly accepted forms for proof of residence are utility bills such as electricity, water and gas. You usually only need one utility bill as proof. But if the utility bills aren’t in your name, then a medical bill or tax bill, bank statement, lease or mortgage contract, driver’s license, cellphone bill or several pieces of business mail (or junk mail) may work, depending on the lender.

If you absolutely need to receive mail at an address that is not your residential address, you can specify that your mailing address is different from your residential address. Specifying this may be an option during the process of buying the car, or you may need to contact the lender afterward to add to your personal preferences.

4. Current vehicle registration (for trade-in)

To trade in a vehicle, you have to prove you have the right to do so. If you have the current vehicle registration in hand and only in your name, you’re good to go in most cases. This applies if you go to a dealership to get your new car, no matter whether you still owe money on the vehicle or you own the car outright.

Do you need to bring the title? If you own the vehicle (you paid off the loan or you paid for it in cash), then you should have a title and it’s best to bring it in order to avoid delays in paperwork processing. But if you lost it, you could fill out a form that’s called “lost title” or “request for title”(provided by the dealership or your state’s DMV site) and may be able to trade in the car with that form instead of the title, as long as you have the current vehicle registration.

What’s a payoff instead of a title? If you owe money on the trade-in, you don’t have a title. In this case, you’ll need a payoff statement, which shows how much money it costs to pay off the entire vehicle loan at once, at an exact date. You do not have to worry about getting this yourself if you go to a dealership. At a dealer, your salesperson can get a payoff quote from your lender (which is listed on the vehicle registration) and take it from there.

If you are buying a car from a private seller, you might have to do more work. If you need a loan to buy the car from the private seller, the lender may call and get the payoff amount for you and apply that amount into your new loan, or you may have to call yourself to find the amount and tell your new lender what it is.

If the trade-in isn’t yours. In the case that the car you want to trade in isn’t yours, you need to have the owner sign off, saying that they give you the right to trade it in and they acknowledge they won’t have a right to the new car. Some places require that the owner go to the dealership, show their ID and do this in person. If the owner lives in a different state, the same paperwork applies and can be sent to them, but they will probably have to have it notarized.

If there is another name on the vehicle registration or title. If your name is on the paperwork for the trade-in along with someone else’s, you might have to get them to sign off on the transaction. Because their name is on the paperwork, they’re technically part owner. Depending on the state, you may not be able to sell or trade it without their permission.

To find out whether your state requires consent from both owners before you can sell or trade a vehicle, visit your state’s Department of Motor Vehicles website or ask a manager at a dealership. If it is required, follow the steps in the section above to get permission from another person.

5. Method of payment

Whether you’re giving a small down payment or paying for the whole vehicle at once, here are some notes on what to bring when buying a car in the way of money and funds.

Credit or debit cards. Do bring your card and don’t forget your PIN number (if you have one). Also, don’t be surprised if the transaction is declined if you didn’t warn the card company about a large purchase in advance. Call your credit card company or bank (if it’s a debit card) ahead of time to let them know you’re giving a vehicle down payment and you may need a one-time or a one-day increase to your normal daily credit or debit limit. It’s easier to do this ahead of time instead of when you’re in the finance office at the dealership.

Cash. Bring large bills for faster processing and expect a dealership manager to count it in front of you and check for counterfeit currency.

Check. For exceptionally large personal checks, the dealership finance manager may call your financial institution to ensure fund availability. Some dealers have a third-party check processing company that guarantees checks. If the dealership can’t verify funds, they may ask for a different form of payment.

A dealer’s check. If you already accepted a loan offer directly from a lender, the lender may give you a blank check (with a maximum limit on it) for you to use to buy a vehicle. After you strike a deal and sign the paperwork to buy the car, you’ll give the dealer’s check to the finance manager who will fill it out and send it to the lender with the other paperwork. Your loan will be finalized when the lender pays the dealer.

6. Rebate qualification documents

If you want a rebate, you usually need to bring appropriate documents showing you qualify. Here are three common car rebates and the documents to take with you to show you meet the requirements.

  • Military. Bring the appropriate document pertaining to your current military status:
    Active duty: Bring your Leave and Earnings Statement (LES).
    Retired or separated from service: Bring your DD-214 discharge papers.
    Again, military ID badges are not acceptable. If you want to receive the discount because your spouse or household member served, not you, they will need to come with you and bring their LES or DD-214 and proof of their relationship with you such as a marriage license or proof of residence.
  • Grad/Student. Your diploma showing you graduated or transcript papers showing your soon-to-be graduation are generally accepted. You may also need to have proof of income.
  • Conquest/Loyalty. Bring the vehicle registration or title of the car that shows either a competitor brand and model (for the conquest rebate) or the same brand (for the loyalty rebate) to prove that you (or someone in your household) currently owns it. If the car is not registered to a household member, you may have to prove that you live at the same address with proof of residence for each of you.

7. Knowledge of your credit and banking history

The following things aren’t required papers to bring with you but should at least be familiar knowledge when making a major purchaser. If you want to bring a copy of any of these for your own reference, feel free.

Credit history. When the lender does a hard pull on your credit, they will receive a copy of your credit history. You don’t need to provide one to the lender. You should, however, know your credit score (you could check it at LendingTree) and what’s on your credit history report. Both are important when shopping for a car loan because they impact the type of loan offer you receive. (LendingTree owns MagnifyMoney.)

Dealerships are usually able to make money by increasing the auto loan APR above what the lender charges. And to convince you that you deserve a higher APR, they might point out places where your credit history is lacking. If you have your own copy of your credit history and a preapproval from another lender, you’ll have a better idea of the rate you deserve.

Banking history. Usually, if a lender asks for bank statements, they want them as proof of income or proof of assets. Unless you know you need these, it’s not recommended to bring them. It would be good, however, to know how to get into your bank account from another computer, so you could print bank statements at the dealership if later deemed necessary.

Asset amounts. How much you have in your savings or investment accounts isn’t just a good way to show off that you manage money well, it’s also a way for the lender to confirm that if you don’t make your car payments, you have liquid assets the lender can take instead. You would only likely need these documents to buy a car if you have a lot of current debt on your credit history.

8. An auto loan preapproval

Because dealerships can make money by increasing your auto loan APR above what the lender charges, we highly recommend you get an auto loan preapproval from your bank, credit union or online lender before you step foot into a dealership.

A preapproval will tell you the APR you can get, the amount you can borrow and how long or short your loan can be. You’re not tied to any one dealership, either. If you don’t like the dealership, you can leave and take your preapproval with you. It doesn’t hurt your credit to apply for a few preapprovals or a few auto loans any more than it would to apply for one — if you do your applications within a 14-day window.

So if a salesperson offers you a 5% APR loan and you have a 2% APR preapproval in your pocket, your life just got easier. You can read more about the benefits of getting a preapproved auto loan here.

LendingTree
APR

As low as
3.09%

Terms

24 To 84

months

Fees

Varies

SEE OFFERS Secured

on LendingTree’s secure website

LendingTree is our parent company. LendingTree is unique in that they allow you to compare multiple, auto loan offers within minutes. Everything is done online. LendingTree is not a lender, but their service connects you with up to five offers from auto loan lenders based on your creditworthiness.

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Jenn Jones is a writer at MagnifyMoney. You can email Jenn at jennifer@magnifymoney.com

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Everything Non-U.S. Citizens Should Know About Financing a Car

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Buying a car as a non-citizen
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When they first arrive in the U.S., many expats and international students pay cash to purchase cars because it seems like the easiest way to buy a vehicle in their new country. But you can finance a car as a noncitizen, an expat worker or an international student.

Lenders cannot discriminate against anyone based on citizenship. But they do determine a borrower’s creditworthiness. On the surface, it seems like a noncitizen is in the same position as any American borrower. But the truth is, you do have unique challenges in obtaining auto loans because of your credit (or lack thereof) and immigration status, which affects the loan terms and interest rates that you will get.

To help you make better borrowing decisions, we will go over the details that international students or expats in the U.S. need to pay specific attention to when it comes to financing a vehicle.

Things you need to know before taking a car loan

Credit history

This will likely be your biggest obstacle because chances are you may not have had time to build a credit history in this country. Without establishing credit first, it’s extremely difficult for you to receive financing for a vehicle.

And even if you are deemed eligible for an auto loan, you may receive a far higher interest rate compared with those with a U.S. credit history.

When “ghosts” aren’t offered a loan due to lack of credit history, they need to have a cosigner who’s living in the country and has a U.S. credit history. The cosigner may not have to be a U.S. citizen. With a cosigner on your auto loan, your interest rate may not be as astronomical, but it will still be significantly higher than that of a borrower with healthy U.S. credit.

If you are going to live in the U.S. for a long time, it’s worth spending some time establishing or improving your credit score now so that you can refinance or qualify for a better APR on an auto loan later.

The length of your visa

When you arrive at a dealership, a dealer runs your Social Security number to check your credit, which will also tell the dealer who you are.

Another question is how long you will be allowed in the country. As a foreign national in the U.S., the loan term you will be eligible for has to be shorter than the period you’re allowed to stay in the country legally.

This means if your work visa is valid for three years, your auto loan will be three years or less. According to data from Experian, one of the three major credit reporting agencies in the U.S., the average car loan term Americans get is nearly six years.

To shorten the length of your auto loan, you either have to put down a larger down payment or pay higher monthly payments. On the bright side, your total finance charges over the life of the loan would be lower as a result.

Down payment

International AutoSource, a service for expat car leasing, financing and rentals without a local credit history, advises expats and international students to provide a down payment of 10% to 20%.

The more you can put down on your car when you buy it, the better APRs you will likely be offered because it’s a less risky loan for the lender. To avoid depleting your savings, once you have done your research and finalized your vehicle decision, you probably want to save up for the down payment first, as well as run the numbers to make sure that the monthly payment will fit into your budget.

Where to shop for a car loan

Like buying anything else, you should always shop around for a car — and a car loan — comparing options and negotiating with sellers for a lower purchase price.

Dealerships

The most common way to get a car loan is to go through a dealership that acts as a middleman between you and the lender. You buy the car and fill out all the paperwork through the dealership. Your first contact with your lender would be about a few weeks after everything is signed, when you should expect to receive detailed information about your loan account.

Direct lenders

You can also apply for an auto loan directly through banks, credit unions or finance companies online to avoid fees that you could otherwise incur with a dealership. Compare auto loans on LendingTree’s online exchange. MagnifyMoney is a subsidiary of LendingTree.

Services catering toward expats

There are also car financing services catering to your special needs as a non-U.S. citizen. Look for those services online and reach out to them for specifics.

International AutoSource, as we mentioned before, is an established car leasing and financing service specialized in working with foreign nationals. The company works directly with car manufacturers and allows expats without a credit history to take out auto loans. Its APRs range from 0.9% to 6%, depending on the vehicle, model and terms. For comparison, the APR for a 48-month auto loan can be as low as 3.44%.

Documentation non-U.S. citizens need to apply for an auto loan

Proof of identity

You can provide your passport. A green card, employment authorization card or a driver’s license will also do.

Visa

Lenders need to verify the length of your stay in the U.S. to determine your loan term. Your valid U.S. visa will help them determine the duration of your loan term.

Social Security number

To pull your credit history, a lender will need your Social Security number, name, address and date of birth.

Proof of residence

Your driver’s license usually works if your address on the license is current. Otherwise, you may show the dealer a piece of mail you have received recently that has your name and address on it, such as a utility bill or bank statement.

Proof of income and employment

Copies of your pay stub that is dated within 30 days and details the salary you’ve been paid year to date. You may also be asked to provide three months’ worth of pay stubs, bank statements, a verifiable offer of employment or an employment letter.

Proof of insurance

You are required by your lender to have auto insurance if you are to take a loan on a car. Check with your lender on exact coverage requirements, but most require that you have full coverage (liability and collision).

It’s a good idea to shop around for auto insurance before purchasing a vehicle. Get multiple quotes so that you know what to expect, even if you don’t know exactly which car you’re getting. It’s usually after you agree to buy a specific car, before you go in to sign the paperwork for it, that you will be asked to obtain full coverage insurance and have the company provide proof of insurance. You can call the company that previously gave you the best insurance quote and finalize the decision. The insurance company can send proof of coverage to the dealership, either by email or fax. The dealer should then give you and the lender each a copy.

Vehicle information

If you’re buying a new car, you will need to obtain or complete a bill of sale, purchase agreement or buyer’s order that should include:

  • Purchase price
  • Vehicle identification number (VIN)
  • Year, make and model

If you’re buying a used car, aside from the above information, you also need to provide the car’s mileage, original title and disclosure of any liens on the car. You can obtain such information from your seller.

A key takeaway

Before you decide to buy a specific car, you should determine whether financing is your best option based on your credit, your cash flow and how long you will stay in the U.S. If you are here only on a temporary assignment, maybe leasing a car would be a better solution. For example, Volvo has a special leasing program for international students. Once you decide that you want to finance a car, if you can’t qualify for a desirable APR due to the lack of credit, do the math and see if taking on an expensive loan makes economic sense for you. Consider getting a cosigner on your loan if you can. In some cases, when people are not in urgent need for a car to get around, it’s worth spending some time to improve your credit first and waiting to buy later.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Shen Lu
Shen Lu |

Shen Lu is a writer at MagnifyMoney. You can email Shen Lu at shenlu@magnifymoney.com

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Auto Loan

How to Negotiate Car Price

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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A car is only worth what someone is willing to pay for it. So it’s usually a salesperson’s job to convince you it’s worth a lot. Many Americans hate bargaining and rarely do it. So when faced with negotiating a major purchase with someone who negotiates as their job, it can be daunting.

We give you advice in negotiating car prices, tricks for the shy — or bold — and different tactics to try depending on what type of car you’re buying, new or used.

Car price negotiating tips for everyone

The first part of successful negotiation is doing your homework — looking up car values and doing some online price shopping. It’s an unpopular step. It doesn’t have the same feeling many people associate with negotiation: fast talking, slicked hair, Cuban cigars. But it’s definitely the starting point for a successful car search.

Look up the current values
No matter how you plan to get your car, whether you want to buy your car completely online with as little human interaction as possible or stride onto the car lot with your cowboy hat on, ready to duke it out, you should know what to fight for other than the vague idea of “cheaper price.”

A safe bet is to use what the lenders use to find the value of vehicles. Lenders price vehicles based on industry guides such as Kelley Blue Book (KBB) or via the National Automobile Dealers Association (NADA). Both are entirely free to use online. Once you narrow your choices to a couple of cars or the car, look up what it’s worth. That’s the fair market value, and you should aim for that or lower.

New cars will have a guide value and a manufacturer’s suggested retail price (MSRP). The two should be similar, but you could make the case you deserve to pay the lower price. See below for more on how to negotiate a new car price.

Shop virtually before shopping in person
Visit a few dealership websites or online marketplaces to see what’s out there. There are several auto-buying websites and phone apps such as Edmunds and VIN check by iSeeCars that will tell you how a car’s sticker price compares with its market value. You can also see how similar cars are priced in your area thanks to mapping features, which may be easier to navigate rather than clicking through search filters and numerous pages for each dealership.

If you find that a car you want is priced more cheaply in the next town, call your local dealership, tell them the other guy is selling that car for the lower price and ask them to beat it. And, if you want, you could repeat this call-and-price process several times to see how low you can get the price.

Be aware that many dealerships will do their best to get your personal information. It’s relatively safe to give your name and email, but we don’t recommend you provide your address or phone number unless you want them calling you back often. Tell them you’re shopping around and you need them to convince you by giving their best price before you go in or provide any personal information.

Do not focus on monthly payments
This is the most common and most costly mistake car buyers make. Focusing on monthly payments makes it easier for the dealership to keep the car price high and slip other things into your payment. Thinking about things on a monthly basis prevents you from seeing the total cost.

A common trick is for the salesperson to use a negotiation worksheet called the “four square.” On this four square, they may address everything with you but the car price. Instead of writing price negotiations in one of the four boxes, a salesperson might write reasons why the price is set, such as “newest model” and “moonroof.” Don’t let them get away with this. It’s feasible that anyone could sell you anything at any price and still meet your monthly payment requirement — they just make the loan longer. If you get a good price on the car, the monthly payment will follow.

After you decide on the price, when you do get to talking about monthly payment, ask what the monthly payment includes. It should only include the car, taxes, title and license fees, the APR and negative equity from a trade-in, if applicable. It should not include warranty, Guaranteed Auto Protection (GAP) insurance or anything else.

If it does include something else, ask what the charges are and their total prices, not their monthly prices. A warranty may cost $30 a month, which may not sound like a lot, but over your entire loan it can add up to more than $2,000. If you don’t want it, say so.

Always keep your eye on the APR
The dealership cannot change your APR based on whether you buy a warranty or any other add-ons. The best way to prevent them from increasing your APR period is to get preapproved loan offers from other lenders before you go to the dealership to shop for cars. This way you already have loan options and you know what APR you deserve. You can read more on getting an auto loan preapproval here.

Go with a friend
For the bold and the shy alike, going to negotiate car prices with a friend or family member can be a huge help. Having someone to talk to while the salesperson runs to check prices with a manager will give you something to do besides twiddle your thumbs and wonder silently what’s taking so long. An extra set of eyes may see something you don’t.

Be aware that whoever goes with you will probably get a window of insight into your finances. If privacy matters to you, don’t take a friend who won’t respect it. Let your friend know ahead of time if you don’t want them to share any of your information they may learn during the process.

Try to time it right
Sometimes when you need a new car, you need it right away. Other times, you may have the luxury of being able to plan out when to get another vehicle. If you have that luxury, here are the times when you’re more likely to negotiate a better deal.

  • On a weekday. There is less business at a dealership during the workday. Things won’t be as busy, meaning the salesperson is less likely to pressure you to hurry up and buy the car so they can move on to the next customer.
  • The end of the month. Most dealerships have monthly sales goals. If you go at the end of the month, they might be really pushing to hit that number and thus be willing to cut a better deal for you than they would be at the beginning of the month.
  • The end of the year. With new car models coming in, dealerships want to clear out the older models. These older models are still new cars; they’re simply no longer the hottest thing on the market and are priced accordingly. Especially in December, dealers may be willing to sell them at a loss because these cars are only getting older, taking up space and decreasing in value.

Walk away
While it can be annoying to spend hours at one dealership, not come to an agreement and walk away feeling like you wasted your time, you should be willing to walk away. Otherwise, you might waste a whole lot more time in the form of working a ton of hours to pay off an overpriced car.

Car price negotiating tips for the more timid

No matter how much the salesperson smiles at you, remember: Buying a car and getting a loan is all business, and you need to do what’s best for you.

Call ahead to set an appointment
You can call the dealership ahead of time and request an appointment. Some dealerships will even let you request the type of person you’d like to have as your salesperson. You could specifically say you would like to work with a person who is not pushy. And if you do get a pushy salesperson, ask for another or go to another dealership — you are not tied to a salesperson or a dealership.

Another benefit of an appointment is to request ahead of time the specific car or cars you’d like to see. This way, you won’t have to wait for an available salesperson if the dealership is busy. You can breeze past any salespeople that may be waiting by the door, and the cars you want to see may be lined up and waiting for you. It could make things more efficient, putting less pressure on you.

Take printouts or screenshots
Printouts can be useful as a tangible reference. Screenshots also make things easy to access (rather than searching and finding something online again). Both put prices in black and white. And, this way, if the salesperson asks, “Are you sure that’s what you saw?” you can say yes and show them.

Break up the process
You do not have to do everything in one day. Even if the salesperson tells you the car you like might be sold tomorrow, there are thousands of cars out there and it’s probably better to wait and choose another car rather than make a choice under pressure that’s not right for you.

Test-drive a couple of cars and then take lunch to talk about the vehicles with a friend. Or sleep on your options for a night and go back the next day or the day after that. As a general warning, do not wait weeks on end as the car is more likely to sell and any sales specials are likely to change. If you do find yourself putting off the purchase for that long, then it may not be the right vehicle or the right time for you to buy.

Car price negotiating tips for the more aggressive

If you like negotiating and you smile at the thought of playing hardball, here’s how you could negotiate car price.

Make a low offer
In most negotiations, you end up meeting somewhere in the middle. So “the middle” might be lower if you start very low. Don’t worry about insulting the salesperson by making a low offer. Once you name a price as the buyer, that price usually only goes up, not down.

If you ultimately want to pay no more than $17,000 for a car that’s priced at $20,000, don’t offer $17,000 off the bat. Offer $11,000 and see what they do. After a couple of rounds of “this price,” “no, this price,” they might end up saying yes to a lower price than what you aimed for.

But don’t expect the dealer to sell you a $20,000 car for $11,000. Just as you have many other dealerships as potential sellers, they have many other customers as potential buyers. If you are completely unreasonable, you won’t have to threaten to get up and walk away because the dealership will invite you to leave. Again, if you’re armed with a car’s current value from an industry guide such as KBB or NADA, you will be able, at the very least, to aim a bit below that price.

Negotiate with two dealers at once
An aggressive car negotiating tactic you might use is to be at one dealership talking with a salesperson while having another dealership on the phone. Doing this, you can play the two dealers off each other and get immediate answers. If you put the caller on speaker, Dealer A will be able to hear Dealer B give you a price and will likely feel compelled to beat it.

How to negotiate car price for new cars

The MSRP is the standard price on new cars. It’s the number you may hear in radio car ads: “Krazy Kevin is selling all new cars for $100 below MSRP!”

MSPR is not what the dealer paid for the car. The invoice price is what the dealer paid for the car and even then there is a “holdback” in the invoice if you know where to look. The holdback is a reserve profit, so a dealer could sell a vehicle at invoice and still make money. Contrary to what they would have you believe, dealers will not need to eat their shirt if they sell a car to you at a price under invoice, although a salesperson might have to eat their pride.

  • If a salesperson tells you the car is below MSRP and that it’s such a good deal, ask what the holdback is and ask to see the invoice.
  • If the car is in demand and priced above MSRP, then use some of the negotiating tactics in the “For everyone” section.

In both cases, look up the rebates on the vehicle, which could bring the price down even more. And for information on the specifics of what’s negotiable and what’s not when buying a new car, check out this story on dealer fees from LendingTree.

How to negotiate car price for used cars

A used car doesn’t have an MSRP. It also won’t have rebates (which come from the manufacturer) because the manufacturer isn’t selling the used car — the current owner is. But there are still ways to figure out the fair value and to get a deal whether you buy a used car from a dealer or a private seller.

Determining a used car’s price
To know what a fair market price is on a used car, consult industry guides such as KBB and NADA. (See the above section on looking up current values.) Sellers will sometimes say they bought the car for more than its current value, but that’s not your problem. Just because they overpaid for the car doesn’t mean you need to overpay for the car.

Of course, the guides are just that: guides. They assume the car is in “good” condition, but the car may be in worse condition. Look for any signs of damage, rust or excess wear and tear on engine belts or upholstery that you could point out to make the case that the car is not in “good” condition. It would be labeled in “fair” condition and thus worth less than the posted price and the guide price.

When you are ready to finance your used car, check out our story on the six best used car auto loans and definitely research financing before you go to a dealership — here’s why.

At a dealership
Used cars are usually the most profitable type of car at a dealership because dealers can buy them for cheaper than market value and sell them for over market value. The best way to avoid paying the inflated price is to know the market value. Use KBB or NADA and ask for a free copy of the vehicle history report to see if the car was in an accident, a factor that might be cause for a lower price.

Also be aware the dealer will try to sell you an extended warranty on the used car as it’s another big way the dealer can make money. Odds are, you won’t need it. But if you’re interested, you can check out LendingTree’s ultimate car warranty guide.

The dealer will also try to make money off your auto loan. No matter where you apply for an auto loan — at your bank, credit union or online lender — apply directly through them, not the dealership. If you apply to your bank through a dealership, the dealership may be able to raise the APR above what the bank charges. Applying to your bank cuts out the middleman. When you get to the dealership, you can still apply through the dealer to see if they can beat that rate. But if you don’t have a loan offer that you got directly from a lender, you might be convinced to pay an inflated rate because you wouldn’t know what APR you deserve. A good way to potentially see several APRs you deserve is to fill out an online form at LendingTree, which cuts out the dealer as the middleman.

LendingTree
APR

As low as
3.09%

Terms

24 To 84

months

Fees

Varies

SEE OFFERS Secured

on LendingTree’s secure website

LendingTree is our parent company. LendingTree is unique in that they allow you to compare multiple, auto loan offers within minutes. Everything is done online. LendingTree is not a lender, but their service connects you with up to five offers from auto loan lenders based on your creditworthiness.

From a private seller
Private sellers may find it difficult to sell their cars because they probably don’t have experience selling or access to a deep pool of potential customers. Plus, time spent selling might mean time off work to meet would-be buyers. Because of these things, you can almost always get a car from a private seller for less than you could from a dealership.

Again, use a KBB or NADA guide, but with the setting on “buying from a private seller,” not “buying from a dealer,” as the value will be lower. If you’re serious about the car, consider getting a vehicle history report or having your mechanic inspect it before you make an offer. If you find anything, such as a history of accidents or major repair needed, use that as a reason to lower your offer.

And if the person seems reluctant to sell for the price you want, mention you have the money or the offer ready now. If they don’t take it, they’ll have to wait and repeat the process. List everything they may have to do: post another ad and wait until someone else expresses interest; arrange a meeting time and test drive; and allow time for an independent inspection and negotiation, all the while missing work and (another) family dinner. But you’re offering them the money now.

The bottom line when negotiating car price

A car is typically one of the most expensive purchases a person makes in their lifetime. Be aware that a vehicle is a tool, not an investment, in most cases. Unless it’s an expensive classic car that will only appreciate in value with age, your car isn’t going to be paying you back. So if you can’t negotiate an affordable price on a certain vehicle, look for a less expensive one and try again.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Jenn Jones
Jenn Jones |

Jenn Jones is a writer at MagnifyMoney. You can email Jenn at jennifer@magnifymoney.com

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The People You Meet at a Dealership

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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The parade of people you encounter when buying a car may feel like a confounding tactic meant to throw you off balance — but it’s one that car buyers can also use to their advantage.

You might meet multiple sales staff members and managers, from the first person who calls you about a car to the person who finally hands you the keys. We’ll introduce you to each one, what they want, how they go about doing their jobs and how you can best respond to get the best deal on the lot.

The salesperson who calls you on the phone

You could get a call if you filled out an online form because you were interested in a car. Or, you could get a cold call, a sales call made to you without your permission. While the first might be welcome, most people find cold calls extremely annoying — and “most people” could refer to both you and the caller.

Who they are. The person calling could be a dealership salesperson or an employee at a call center (also called a business development center), which may be part of the dealership or a third party company.

What they want. If the person is a call center employee, their goal is to bring customers to the lot. If the person calling is an auto salesperson, they don’t just want you to come in, they want to sell you a car directly.

How they do it. Both call center employees and car salespeople will use charisma to convince you to come and look at cars. Because call center employees usually receive an appointment-based commission — they may get paid for each person who visits the dealership, whether you buy or not — they might disregard any concerns you may have about credit requirements.

Auto salespeople are paid for selling cars, not getting people in the door, so they may ask more questions to figure out if you are worth pursuing. They don’t want to waste their time on customers who can’t afford a vehicle. If they think you can afford a car, they want to make sure that you ask for them specifically. They may repeat their name often or have you write it down as they have lots of competition, even from other salespeople within the same dealership.

Response tactics. If you simply don’t want them to call, say so and tell them to take your number off the call list. If you are interested in what they’re saying, ask for more information and find out if they’re a call center employee or a car salesperson. If you want, you could set an appointment, but before you go to the dealership, make sure you do your own research on prices or any sale the person described. If you’re serious about getting a car, definitely get an auto loan preapproval before setting foot on the lot. Read more on why you should get an auto loan preapproval here.


The regular car salesperson

That stereotypical guy with slicked-back hair in a plaid suit waiting around like a vulture for you to pull up in the parking lot? He still exists, though he may have upgraded to a polo shirt and slacks. This is the most common job at a car dealership.

Who they are. They are usually very good at dealing with people — however, they are usually not experts in cars, and are probably even new to the industry. There is extremely high turnover in auto sales, due to high stress and long hours.

What they want. They want you to buy a car, but much of the process is out of their hands. They don’t set the prices and, like you, they’re at the mercy of a lender’s decision. If they spend five hours with you and you don’t buy for some reason, they may not get paid for their time or risking their lives on a test drive. They want things to go quickly and smoothly to maximize their chances of selling the most cars. And more to this point, they usually want to build a relationship with you in hopes of future business with you or your family and friends.

How they do it. They’re charming or, rather, they try to be. Each salesperson strikes a balance between being helpful (sometimes to the point of subservience) and being an authoritative figure. Even if they’re new to the industry, a salesperson will probably know more about the car-buying process and prices than you do. Don’t feel bad — it’s their job, while you might only buy a car once every seven years.

Salespeople may negotiate on a car price or monthly payment with you; the level to which they are allowed to negotiate depends on the dealership. No matter who sits down with you to talk about money, a common tool is a sheet called the “four square.” This worksheet breaks down four aspects of a car deal.

An old trick is to discuss everything but the car price in the four square. Instead of writing price negotiations in the price box, the salesperson might write reasons why the price is set, such as “leather seats” and “good gas mileage.” At the end of negotiations, the salesperson may write out and ask you to initial or sign something along the lines of “I agree to buy the car today if the monthly payment is less than $600, with a $5,000 trade-in and $1,000 down.” Notice that the price of the car isn’t mentioned.

Response tactics. Don’t let them get away with distracting you from negotiating on the price of the car. A big and most common mistake is focusing on the monthly payment — focusing just on the payment makes it easier for the dealership to keep the car price high and slip other things into your payment. Instead, focus on the car’s price. Look at the monthly payment only after you get the car’s price — if you get a good price on the car, the monthly payment will follow.

Tip: Don’t be afraid to write on the four square yourself. If the salesperson tries to make you focus on everything but the car price, redirect them. Circle the car price that’s written on the four square and put a down arrow next to it. Say that the price needs to go down before you talk about anything else.

The mercenary car salesperson

These are your typical fast-talkers, paid-on-commission-only salespeople who are drastically aggressive, even when saying “yes, ma’am.”

Who they are. They are experts at making money in car sales. They’ve been in the industry a while and take no prisoners. They can cover a few car dealership job positions and function as a salesperson, closer and finance manager (positions we’ll go over next).

They’re generally not dealership employees, but part of another business that a dealership hires to come in and drive up sales for a short period of time. This makes any social repercussions from their work easy to avoid for both them and the dealership, as they usually do this type of work on the road, far from home, and the dealership can tell any disgruntled customers that person doesn’t work for them anymore.

What they want. Because they are usually straight commission, they’re driven to make a profit, and a large profit at that, on one deal. They probably aren’t interested in networking to build a relationship with you and eventually sell a car to your friends and family.

How they do it. The faster everything goes, the less time you have to think. They will try to hurry you through everything from picking a car to a test drive to signing on the dotted line. Remember, a car deal isn’t just about the car — it’s also about the financing and related products, everything from special wax to warranties, GAP waivers and service contracts. They may also use a four square — and before you realize it, a large portion of your money isn’t even being spent on the car itself.

Response tactics. Slow the process down. Tell them they can go help other customers while you think about something. When discussing monthly payments, tell them to explain everything that the payment includes — that way they can’t slip in a warranty or something similar you don’t want. And if they’re too aggressive, find a manager to ask for a different salesperson or go to a different dealership.

The closer

If a salesperson can’t get a commitment from you to buy a car, they may do a T.O., or a “turn over” to the closer; this is usually the sales manager. It’s the next step up from a salesperson in the hierarchy of a car dealership.

Who they are. Savvy negotiators who climbed their way up from being salespeople; they have years of experience and function as operational leaders in the dealership.

What they want. Their first order of business might be to prevent you from walking away. Their last order of business is to have you agree to buy a car at a certain price or monthly payment. They want you to make a commitment to buy.

How they do it. Establishing a rapport with you is important. You might have spent hours with the salesperson and things didn’t go smoothly (or they probably wouldn’t be there). They know that you see them as a random new person walking in to discuss your personal finances — which is to say, they need to quickly convince you to trust them enough to listen — and maybe spend several thousand dollars.

Response tactics. Look at the logic of what they’re saying. The best way to respond is to have other options. If they tell you, “This is a great price for this car!” show them the car’s value as stated in an industry source like the National Automobile Dealer Association’s guides, a free online resource. If they tell you, “This is the best APR you can get!” show them another loan offer or go get one from your bank or credit union to see if that’s true — it could mean thousands off the total cost. If you’re concerned about multiple hard credit pulls damaging your score, know that you can shop around for the best APR without being penalized; getting multiple loan offers within a 14-day window will not hurt your credit any more than getting one loan offer.

The finance manager

A finance manager’s expertise is to increase the total amount you’re paying for the car deal, one way or another. They can also be called the business manager, the F&I manager (finance and insurance) and, inside the dealership, “the spinner,” because they spin the paperwork around on the desk for everyone to sign. It’s considered one of the cushier types of jobs at a car dealership, as it requires a personal office and a lot of sitting inside, instead of walking around outside in whatever the weather is.

Who they are. They are usually experienced car salespeople who climbed the ladder and went through a certification program. They are on par with sales managers, but specialize in negotiating on two levels — with both lenders and customers.

What they want. They want you to spend more money, largely by convincing you to buy add-ons such as warranties, service contracts and GAP, which helps their bottom line. They also want the lender to give a finance offer that will let the dealership make the most money.

How they do it. They use the same principles as magicians — they show and hide things very selectively. If you agreed to buy the car for a payment under $600, the finance manager might tell you something along these lines: “I have good news! I convinced the bank to lower your payment. They had it at $630 but I talked them down to $615 and that’s with a warranty. Sound good? Sign here. Now there’s also a pre-paid maintenance plan we offer…”

What they aren’t saying in this example is that without the warranty, your payment is actually $580 — and they definitely wouldn’t tell you they increased your APR. So if you agreed to the $615 payment plus the maintenance plan, that’s an extra $54 a month for 72 months — you just paid the dealer nearly $4,000 for things other than the car. We break it down below:

Response tactics. Much like you did with the salesperson or the closer, don’t just say “OK” to a monthly payment. Ask what the payment includes and then talk about the total price for each thing. You should not be required to buy anything in order to get a loan or a better deal on a loan. If they say otherwise, tell them to show the requirement to you in writing.

If your APR is over what you think it should be, tell them to “drop the points and take the flat.” When a dealer makes money by increasing your APR, it’s called making points (APR points). But a dealer can still make money by taking a flat rate from the lender instead of making points. Of course, to know what APR you deserve, you should get preapproved loan offers from other lenders before you go to the dealership to shop for cars.

The general manager

If a dealership is a kingdom, the general manager (GM) is king — this person is at the top of the hierarchy of a car dealership.

Who they are. They are in charge of the entire dealership, from the janitors to the managers. They are ultimately responsible for dealership profitability and are held to that by the owner(s). They may have started their careers as a salesperson.

What they want. If you as a customer meet the GM (unlikely, though it does happen occasionally) one of three things could be happening. They’re making rounds to raise customer satisfaction scores, acting as a sales manager to keep their skills sharp and retain the respect of the managers by doing some “floor work” — or there’s a huge problem that needs their attention, in which case expect a quick decision and quick result.

How they do it. Depending on what their mission is, how they accomplish it will vary, but quickly and with authority generally applies.

Response tactics. If you believe the dealership flubbed, make your case. GMs want happy customers and are usually busy, so they may side with you quickly. If they don’t, know that you have other options — there are other dealerships to try.

The service writer

After you buy a car, this is the main person with whom you’d interact if you take your car back to the dealership for servicing, from oil changes to complicated repairs.

Who they are. This person interacts with you if you go for an oil change or car repair. They put the appropriate orders in and deal with any warranty companies — in fact, they may literally run back and forth between the mechanic bays and the customer waiting area.

What they want. They want you to be happy so you’ll continue to come back for servicing and so you may buy more accessories or services from them. There are often bonuses and prizes for service writers who sell parts, accessories and future services to customers.

How they do it. The shadier service writers might tell you that you need parts when you don’t, or that you must have a more expensive part when a cheaper one would do just fine.

Response tactics. Look up what the part costs online. Manufacturer parts (such as Toyota, Ford, Chevy parts) can be three times more expensive than aftermarket parts (ones not made by the manufacturer). If you doubt something needs to be fixed or they refuse to use a less expensive part, get another opinion by taking it to an independent mechanic with a good reputation.

People behind the scenes

There are some people behind the scenes you probably won’t officially meet at a dealership, but may impact you nonetheless.

  • Porters. They may drive off in your trade-in car or bring your new car up to you. In the service drive they could take your car to the mechanic bay and back to the customer area. They drive cars to and from different car lots.
  • Detailers. They clean cars inside and out both as basic upkeep on the cars that are for sale and as a final cleaning after you decide to buy the car, before you receive the keys.
  • Finance director. This person is the head of finance managers. They could step in if there’s a complication with car title paperwork if you need your new car registered out of state or your trade-in has an out-of-state title or registration.
  • General sales manager. This person trains sales staff and is the head of sales managers.
  • Internet sales manager. This person is usually the head of the internal dealership call center, if it has one, and works with the marketing team to post the vehicle details and photos you see online.

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Jenn Jones
Jenn Jones |

Jenn Jones is a writer at MagnifyMoney. You can email Jenn at jennifer@magnifymoney.com

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4 Situations When You Should Consider a Car Lease Buyout

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If you’re nearing the end of your lease, you’re probably thinking about what to do with your car now that it’s not quite so new and shiny, and how much you’ll have to pay if you decide to keep it. One option is to buy the car. But is that to your best advantage?

We’ll break down what a lease buyout is, four situations in which it is — and isn’t — to your advantage, and how the process works.

What is a lease buyout?

A lease buyout is when you decide to purchase the vehicle you have been leasing instead of turning it in. There are two main ways to do this:

  1. Finance the remaining value of the car.
  2. Pay cash for the remaining value.

The good news is, you don’t have to haggle over the amount — every lease contract contains the set price at which you can buy the car at lease-end, if you want.

Because you’re “buying out” the manufacturer for the right to the car, it’s called a lease buyout. In most leases, the person who does the leasing has first dibs on whether they want the car. The leasee decides to buy the car or turn it in and the manufacturer accepts the choice accordingly.

Taxes and fees. Note that if you do buy the car, you may have to pay sales tax and state fees, just as you would if you bought any car. Yes, you already paid taxes on it when you first leased the vehicle, but you did not own it then, and the owner on the title and registration was the leasing company, not you. In a lease buyout, the title and registration will change, meaning you might have to pay such expenses (again), depending on your state. However, you could wind up paying the same fees if you get a new lease or purchase a different car altogether.

When to consider a car lease buyout

Here are some factors that may make buying your leased car worthwhile. These factors range from cold, hard cash considerations to “warm and fuzzy” feelings you may have developed for your vehicle.

If it’s worth more than the buyout price

When you first sign the lease, you agree in the contract what the vehicle will be worth when your lease is up. This is also known as the agreed-upon price at lease-end. It is the guaranteed price you can buy the car for if you want. It is also an estimate of the car’s value in the future. When it actually comes close to lease-end, look up the value of the car. Common sites to research car value include Kelley Blue Book, the National Automobile Dealers Association’s Black Book and Edmunds. If it’s worth a lot more than what you can buy it for, then you would be getting a great deal — paying less than what the car is actually worth.

If you incurred high fees

If you go over your mileage limit, you could find out how quickly a few cents per mile adds up. The same can be said of wear-and-tear charges. If the manufacturer is going to charge you for excess mileage and wear-and-tear damage to the tune of a few thousand dollars, you may be better off buying the car in order to skip the fees.

If you found a third party to do the buyout

One way to skip all types of fees and not buy the car yourself is to do a third-party buyout. You could advertise the car for sale or find a friend who wants to buy it and then that person does the lease buyout through you. Some manufacturers will facilitate a third-party buyout. And, depending on your state, you may be able to buy out your lease, turn around and sell it within a few days and not have to pay the taxes. If you decide to do this, be sure to check with your state’s Department of Motor Vehicles, your leasing company and a dealer or manufacturer to be clear about the laws and processes you have to follow.

If you fell in love the car

So far we covered financial reasons to do a car lease buyout, but there may be emotional reasons as well. It’s not uncommon for drivers to become attached to their vehicles. You’re probably in your car at least twice a day, every day. You may have memories tied to the car, and your life quite literally depends on it functioning well. If you need a car anyway, why not buy the car you love?

When to avoid a car lease buyout

You do not have to buy out your leased vehicle. A huge part of why people like to lease is the fact you have the choice to turn it in and walk away if you want to. Here are three reasons you might want to say goodbye to your leased vehicle.

If the car doesn’t match your needs

Maybe you moved to Chicago and need a car that can better handle both the snow and the tight city parking. Or, you started a company and need extra room to transport clients and business supplies. You don’t have to do an auto lease buyout. Get a different vehicle that fits your needs and can handle what’s going on in your life, not only now but for the foreseeable next few years.

If it isn’t affordable

Buying your leased car may not be affordable. Leasing is appealing in the first place because it offers relatively low payments and APRs when compared with purchasing a car. If the vehicle is still worth a lot on paper, the purchase payments for a buyout could be higher than the lease payments. Don’t forget that taxes and state fees could add on the price of the buyout. You are technically buying a car, it could be subject to sales tax and other fees, depending on your location. It may be cheaper on a monthly payment basis to lease another vehicle. And it could be smarter overall to turn in the car and get an older used car.

If it’s worth less than what your contract says

The car’s buyout value is set at the beginning of the lease and usually can’t be changed. However, this value was a prediction. It may turn out that the car model you have develops expensive problems down the road and is worth much less than what was predicted. If the car value has declined to the point it being significantly less than the set buyout value, you would be overpaying to buy out the car.

If it had major damage

Another way the car could be worth less is if it was damaged while you leased it. If it got hit in a car accident or a storm, it will be considered less valuable because it was damaged, even if that damage was repaired. The negative impact on its value (and thus its price) only affects the owner — in a lease, you’re not the owner, ergo, don’t buy it and become the owner.

How the lease buyout process works

If you know you want to do a lease buyout, call your leasing company two to three months prior to the lease ending. They might call you around the same time period to discuss all of your lease-end options. Tell them you decided to do a car lease buyout and confirm with them the process for ending your lease. They should guide you through it. You’ll have to pay the agreed-upon price at lease-end, which is in your lease contract, plus any taxes or fees that your state may charge. The total amount of what you’ll need to pay is called the payoff.

  • If you pay with cash. You may be able to transfer all the funds necessary to the leasing company and then wait for your title and registration in the mail.
  • If you finance the remaining amount. If you decide to get a loan to finance the car, you should get loan offers one month before the lease officially ends. Be careful with the timing; most loan offers are only good for a month. After the expiration date, you’ll have to apply again.
  • How to look for a lease buyout loan. A lease buyout is technically a different loan than a regular auto loan. So, make sure you apply for the right type of loan from the lender. You might be able to finance with the same company you’re leasing from. But don’t apply to just one place — apply to several so you can choose the best one with the lowest APR (you won’t hurt your credit applying to multiple places instead of one within a two-week period any more than you would if you applied to one).

Once you have your loan or your cash, talk to the lessor and follow the process to complete the buyout. You may have to go to the DMV, the dealership or your lender to sign paperwork to finalize everything. Then you can officially claim the car as yours.

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Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Jenn Jones
Jenn Jones |

Jenn Jones is a writer at MagnifyMoney. You can email Jenn at jennifer@magnifymoney.com

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What Car Should I Buy? 5 Questions to Ask Yourself

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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Have you ever seen a piece of furniture you really wanted to buy and then realized, dang, that won’t fit in my car? Have you ever stood at the pump watching the numbers go up and wished you had a car that was better on gas? Vehicles have different purposes and strengths — but while it may be an enticing idea to have a different vehicle for every function, few people can afford it, so getting one vehicle that’ll accomplish most of what you need is the goal.

Whether you spend your weekends transporting construction lumber or half a soccer team, or you want a vehicle that’ll haul butt down the road, we list the major vehicle types and their primary objectives, plus the questions you’ll need to ask yourself when looking for a new car.

What car should I buy?

What kind of driver are you?

Vehicle type

Example

Prioritizes transporting people over things

Hyundai Sonata, Audi S3

Needs to haul large things

Ford F-150, Toyota Tacoma

Only needs to transport self and one other adult

Honda Civic Coupe, Ford Mustang

Needs room for multiple adults and some stuff

Subaru Outback, Volkswagen Golf

Transports multiple adults and is eco-conscious

Toyota Prius, Chevy Volt

Keeps vehicles for a long time and drives a lot

Land Rover Discovery, BMW 328d

May face bad weather and needs room for five adults

Nissan Rogue, Infiniti QX50

Needs room for five adults and some stuff

Audi Q7, Chevy Tahoe

Transports seven people or large things

Chrysler Town & Country, Nissan Quest

Likes to feel the wind in their hair

Mazda Miata, Fiat 214 Spider

Transports multiple adults

Kia Soul, Honda Fit

Wants sporty looks and performance to match

Acura NSX, Ferrari Portofino

Wants to impress people with a smooth ride

Cadillac Escalade, Porsche Cayenne

Eco-conscious

Tesla Model 3, Nissan Leaf

Before you choose a car, ask these five questions:

When you step on the car lot and see all those glittering vehicles, you’re probably asking two questions: what looks the coolest and what can I afford? While these are perfectly legitimate questions, you don’t necessarily want to end up with a 12-year-old Maserati; there are other things to take into account.

How do you intend to use the vehicle?

What do you transport — people, pizzas, packages or just your awesome self? If you only need to transport yourself (and maybe some pizza) for short commutes in the suburbs, then a small, zippy car might suit you best. If you help take the whole team to a game or have a bunch of stuff for work, a minivan or truck would work better. But if your job involves impressing clients with your ride’s smoothness, power or price tag, a luxury vehicle might be your style.

Distance. If you travel for work, or even just for pleasure, you may want a larger vehicle with room to stretch. You’ll probably also want a gasoline-powered vehicle, as gas stations don’t always sell diesel and electric vehicle charging stations are relatively sparse. And if you’re planning to travel at high speeds, make sure that the car is well-insulated for sound — especially if you’re looking at a convertible — so you won’t hear the wind and the road.

Passengers. If you need to take five kids to sports practice every other day, a coupe is obviously not going to cut it. But if you don’t anticipate transporting lots of people (or animals) very often, going small could not only be convenient, but also economical — smaller cars generally cost less and usually have better fuel mileage.

Young passengers will need safety seats no matter the type of car; larger cars make it easier to not only install them, but to take the child in and out without gymnastic contortions. And if you’re transporting teenagers, adults or large animals in the backseat, a larger vehicle might be more comfortable for all involved.

Stuff. Real estate agents who need to transport yard signs, contractors who need to transport tools and artists who need to transport supplies may need vehicles to fit not only the amount of stuff they have, but the size and weight of it. A framed painting canvas might not be voluminous, but it may be 6 feet long.

Awe factor. Impressing others can be a legitimate vehicle purpose. You may want to impress (prospective) clients when you pick them up from the airport in a luxury car, or impress (upon) your friends (and frenemies) by leaving them in the dust in a performance car or a jacked-up truck.

What’s the weather?

The type of weather you face should have a large input on the type of vehicle you get. However, it shouldn’t make you overly confident in adverse conditions. Just because you have all-wheel drive, doesn’t mean you should go down an icy freeway without caution.

Rain

If you expect slippery roads, consider a vehicle that’s more physically balanced, like a sedan or an SUV. A coupe, which is heavy in the front from the engine and light in the back, could make you more prone to loose steering control on turns or curves and have you fishtailing across the lanes. “Fishtailing” is when your back wheels have little to no traction and the rear of the vehicle swings uncontrollably, either side-to-side or to an extreme on one side. The same thing can happen with a performance car or a pickup (with an empty bed) for the same reasons.

Snow and ice

Colder climates probably mean your car will be exposed to snow, ice and all of the downsides that come with them — slippery and bumpier roads due to expanding and contracting pavement creating potholes. You might consider a vehicle with all-wheel drive (AWD) or four-wheel drive (4WD).

  • Four-wheel drive (4WD): This is also called 4×4 and is usually offered on SUVs, trucks and wagons. It is the best type of drivetrain to handle the worst conditions, on- and off-road through deep snow, water or mud. The Jeeps you may see in videos climbing near vertical cliffs have 4WD, although we don’t recommend you getting one and trying it out immediately. The driver usually turns the 4WD on and off, according to road conditions.
  • All-wheel drive (AWD): This is usually found on crossovers and luxury vehicles. It is designed to help the vehicle keep traction in light to moderate conditions without the driver turning it off and on.

In addition, consider getting a car that’s not white or gray, especially if you have to park on the street at home or for work instead of in a driveway or parking lot. The color might make your car blend into the wintery environment, so it’s harder for other drivers, including snowplow drivers, to see it. The ice from the salty roads will also be harder for you to see on your vehicle. And if you can’t see it, you might be less inclined to wash your vehicle as often, leaving the salt to eat away at the car’s clear coat and paint.

Hot and cold

If the summer heat is considerable in your area, look at cars with colors that reflect heat (mostly light colors) instead of absorb it (mostly dark colors).

But it doesn’t necessarily have to snow and ice for it to be cold where you live — if temperatures often drop, you might not want a cloth-top convertible or select trims of Jeep Wranglers, as they may not be well insulated to keep you warm in the winter.

What’s the geography?

Where will you use the vehicle? The type of landscape in your town can help determine the type of vehicle you want. Whether you live in the mountains, the jungle or even just a concrete jungle, you’ll want a vehicle that can best handle the terrain you face daily.

City. If you often drive in a city, you may want a compact sedan, a coupe, a Mini or a small electric vehicle — you’ll be better able to squeeze into parking spots, navigate sharp city corners and save on gas with all of the stop-and-go driving you’ll probably do. Most cities manage their urban roads with infrastructure to handle rain and snow, so you might not need a large AWD or 4WD vehicle to help you plow through the weather.

Country. If you have to go long distances to get anywhere, you probably want to be able to take all of your stuff with you, and the roads you face may be less well maintained. A larger vehicle with AWD or 4WD might be the most useful.

Mountains. A lot of cars can handle going up, down and around mountain roads. However, it especially takes a toll on electric vehicles. Using power to climb a mountain, to brake descending a mountain and to brake and accelerate on twists and turns drains a battery, greatly reducing your expected driving range.

What is most important to you?

People value different things depending on their lifestyle. Maybe you just totaled your car and you’re really interested in safety features for your next one; perhaps you go on long trips and a cushy seat and top-notch sound system are important. We broke out some categories to help guide you when you’re asking yourself what you care about in a vehicle.

Safety. The Insurance Institute for Highway Safety crash tests vehicles each year to see which brands are the safest. Kia had the most 2018 award winners with nine models — 32 models were named as “top picks” over the last five years. Volvo and Lexus do well in the luxury categories, having won 23 and 20 top picks, respectively, over the past five years.

Luxury. If you want your car to feel like a 5-star hotel room on wheels, you’ve got plenty of choices, from BMW to Rolls Royce. Many luxury cars also cross into other categories with extremely good safety ratings (Volvo), performance (Porsche) and off-roading (Land Rover).

Speed. Enzo Ferrari once said that he designed engines; the rest of the car just happened to be attached. If you like to do autocross on the weekends to get your blood pumping, or you just like to know you’ve got the ability to go faster than anyone and everyone on the street, performance cars will cost you a pretty penny, but some people believe they’re worth every cent.

Off-roading. If the thrill of crashing through brush in the backwoods, carefully gunning up a sheer cliff face or getting neck-deep in muddy water interests you, off-roading might be your thing. Serious off-roading requires 4WD (not just AWD) and some vehicles have special off-road designations. Jeep has Trailhawk trims and “trail rated” badges, and some Land Rover models have specific settings for sand, mud, rocks, gravel, snow/ice and wading through water.

Technology. You can still get a brand new Kia Rio with windows you have to roll up and down by hand, but you could also get a Tesla that can largely drive itself and has a touchscreen that takes up the whole center of the dashboard — most people, though, get something in between. The National Highway Traffic Safety Administration takes particular interest in crash avoidance technology, such as automatic braking and blind spot sensor warnings, and says this type of technology may offer significant promise for increasing safety.

Reliability and value. Kelley Blue Book, Consumer Reports, J.D. Power and Edmunds are some of the top industry experts on the subject. Spoiler alert: Toyota consistently ranks at or near the top of the rankings across these four sites.

How much can you afford?

When comparing cars to your budget, the easiest thing to look at is the price of the car. But don’t forget that taxes will add to that monthly payment, plus you’ll also be paying for fuel, insurance and maintenance, and parking if you live in a big city.

Figure out your budget before looking at cars. Most people know how much they make each month, but fewer know how much they spend. Do not head straight to a dealership — you don’t want to fall in love with a car that’s way out of your budget and then become disappointed, or worse, find out after the purchase that you can only really afford it if you lived under a bridge.

Look at how much you spend versus how much you make. Do this to figure out how much you can afford. If you spend everything except that $5 needed to keep your bank account open, then you’re going to have to take a closer look at your spending. You’ll have to decide if getting a car is worth giving up something, such as going out for food and drinks often. If you don’t spend everything, how much do you have left over? And out of that amount, how much do you want to spend each month on everything that a car costs?

Determine how much of your car budget will go to the car. So now you’ve got your monthly budget amount of what you can spend on having a car — but how much of that is for the car versus the car insurance versus taxes and everything else? Admittedly, this is trickier to answer. However, here’s a handy rule of thumb: the more expensive the car, the more expensive everything else will be, taking a bigger the bite out of your budget and leaving less for the car payment itself. The reverse is generally true, too: the cheaper the car, the cheaper everything else will be.

  • See what car insurance will cost. If you’ve never had car insurance before — or if you have a long history of speeding — your insurance will be more expensive. Ask the insurance company for quotes on different cars to get an idea if auto insurance will cost you $50 a month, or $200, so you can plan accordingly.
  • Think about taxes and fees. Depending on your state and the dealership you go to, taxes and fees can vary. According to Nicolas Ortiz, a San Antonio-based insurance professional who formerly worked as a dealership finance manager, the total of most taxes and fees for almost every state range between 8% and 10% of the car’s price tag.
  • Maintenance and gas cost. Be aware gas prices are on the rise and you’ll need to change your car’s oil about every four months, which can cost $20 (regular oil for a low-mileage, mass market car) to $300 (top synthetic oil for a luxury car). 4WD vehicles also require extra maintenance.
  • APR loan cost. The APR on a loan is how much it costs you to borrow money. If you would have to take out a payday loan with 200% APR in order to get a car, don’t do it. That means you’ll pay double the price of the car. Most states limit car loan APRs to below 25% — and that’s still considered high. To see what type of APR you qualify for, you could fill out an online form at LendingTree and potentially get up to five auto loan preapprovals, including APR offers.

What’s left over is the amount of your budget that can go toward paying for the car itself. For an example, let’s say you have a total of $340 to spend on a car each month. You did your research and found out auto insurance will be about $80 a month, taxes are 9%, maintenance/gas costs average out to $30 a month and you have an auto loan preapproval with 5% APR. That means you’ll probably spend about $140 to pay for the things you need for the car, which leaves about $200 for your monthly car payment.

How to get a total price based on monthly budget. This is the easy part! There are tons of auto loan calculators that help you figure this out. This LendingTree auto affordability calculator lets you put in your monthly payment, APR and how long the loan is, and tells you the car price you can afford. This will be the car price tag you should be seeking.

If you want to learn more about budgeting for the car that suits you best, you can check out other MagnifyMoney stories: How Much Car Can I Afford, The 20/4/10 Rule and The Best Auto Loans: 2018 New & Used Car Loan Rates.

Disclaimer: This article may contain links to LendingTree, which is the parent company of MagnifyMoney.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Jenn Jones
Jenn Jones |

Jenn Jones is a writer at MagnifyMoney. You can email Jenn at jennifer@magnifymoney.com

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Auto Loan

How Much Car Can I Afford?

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Disclosure : By clicking “See Offers” you’ll be directed to our parent company, LendingTree. You may or may not be matched with the specific lender you clicked on, but up to five different lenders based on your creditworthiness.

From “Krazy Kevin” selling used cars on radio commercials to the fancy video ads from the car manufacturers, we’re surrounded by people telling us beautiful cars are available to buy and they can help us get into one.

But you don’t want to buy a car and then only eat ramen until it’s paid off — or have it repossessed. So, when and how do you figure out what you can afford?

Setting a car budget you can afford

When?

Figuring out your budget before you go car shopping is important, so you know under what price range to be looking. Having a number in mind before looking at vehicles could save you a lot of stress.

“If you don’t know what you can afford, that would be dangerous,” said Patrick Holmes, a financial services officer at State Employees Credit Union and a member of the National Association of Personal Finance Advisors in Charlotte, N.C. “I would not go to the dealership first thing because you’ll probably walk out with a $20,000 car when you could only afford $12,000.”

How?

In order to figure out what you can buy, first look at what you’re already buying. “Figure out your month-to-month expenses first.” Holmes said. Almost everyone knows how much they make each month, but few people really know how much they spend in the same time period.
When you get your check, you have two basic options on what to do with the money: Spend it or save it.

See how much you spend by adding up your fixed expenses, like rent, insurance, phone, internet and credit card bills. Then figure out how much you spend on more variable expenses, like food, clothing, entertainment, etc. Try keeping a spending journal, using a budgeting app or reviewing your bank and credit card account statements to get a sense of what you do with your spending money on a monthly basis.

Based on how much you have left over (and how much you want to continue saving), you’ll know how much you have available to spend on a car payment. If you don’t have much left over, you’ll need to make some changes to your spending (or find ways to earn more money) before trying to fit in a car payment.

How much?

Just because you can spend money, doesn’t mean you should spend it all. Once you decide what you can spend on a car, look at what you should spend. After all, you want to be able to have extra cash on hand in case something on the car breaks or you want to take a vacation. The classic rule is to keep your total transportation costs to under 10% of your monthly income. If that’s not possible, it should definitely be under 20%.

Know the 20/4/10 rule

This is the classic and more frugal guideline for car buying. The 20/4/10 rule is to put 20% down, have an auto loan for 4 years maximum and keep total transportation costs under 10% of your income.

Based on this rule, if the car you want is $20,000, you should give $4,000 as a down payment. If you only have $2,000 as a down payment, you should be looking at a $10,000 car. What’s left over after your down payment, the 80%, is what you get an auto loan for, which, according to this guideline, shouldn’t be more than four years (48 months) long. Whatever you do, it definitely should be under seven years (84 months) long. The last part of the rule is that the total monthly cost of the car (including using the car) should be no more than 10% of your income. You can read more about the 20/4/10 rule here and play around with an auto payment calculator here. Disclaimer: This post contains links to LendingTree, the parent company of MagnifyMoney.

Budgeting beyond the sticker price

So you figured out what you should spend monthly for a vehicle. That amount will need to cover not just the car, but gas, auto insurance, taxes and more. A vehicle is likely to cost more than the neon numbers plastered to its windshield. In this section, we’ll tell you the other costs that come into play with buying and owning a car that often aren’t posted upfront.

Government and dealership fees

When you buy a vehicle, you generally have to pay government fees, including license and registration. A dealer will usually go pay this for you, which is a great convenience because you won’t have to go to the DMV or tax assessor’s office during normal business hours to fill out paperwork and wait in line to submit it. However, the dealer does not do this for free — it charges administrative and processing fees to do this for you. They often are several hundred dollars and non-negotiable.

State and local taxes

Most states charge a sales tax, and your municipality might have one, too. And you probably won’t get away with going to a sales tax-free state to buy your car. Nicolas Ortiz is an auto adjuster and insurance agent for USAA in San Antonio where he also worked in two auto dealerships as a finance manager. He explained that when you buy a car from a different state, you have to pay the taxes for the vehicle based on the state in which you live. “You pay all applicable taxes and fees to the state where you’re registering the car.” Ortiz said.

Most of these charges are percentages, meaning the lower the price of the car, the less you’ll pay. Still, don’t expect to get off lightly. Ortiz explained to MagnifyMoney, “In my experience, if a state has lower fees, it will have a higher sales tax and vice versa. Expect to pay 8% – 10% of the [vehicle’s] sales price in taxes and fees.”

Recurring costs

Gas, car insurance and oil changes are all types of recurring costs. These costs highly depend on which type of car you have and how you use it. If you have an older car and a long work commute, you may have to budget a lot for gas, but it may be cheap to insure. A newer car with great gas mileage will probably cost you less in gas and maintenance, but more in taxes and insurance.

Don’t forget that if you work in a city, you may have to pay to park your car in a lot or a garage close to work. Remember to also account for anything you might add to your loan that you’ll also be paying for monthly, such as GAP insurance or an extended warranty.

Other potential costs

It’s a good idea to set aside money each month for an unexpected car expense, like repairs or traffic tickets (though you should do your best to avoid those). Keep in mind repairs aren’t limited to old cars. For example, the car’s age doesn’t matter much if you run over a nail and need a new tire. Even if a repair is covered by insurance, you may still have to pay a deductible.

Looking at more than just the monthly payment

When you add all of these monthly costs up, it could be tempting to wash your hands of it and say your budget is done. But when you go to actually pick out and buy the vehicle, the best way to stick to your budget is not to focus on the monthly payment.

It’s really easy to justify increases in monthly payments: you may think of a $40 payment increase being equivalent to a nice meal once a month, and you can afford that, can’t you? Turns out, $40 a month for four years, even without interest, is almost $2,000. (To avoid costly errors like this, you could read up on the common car loan mistakes many people make.)

Look at the totals of what things add up to, take the time to shop around for cars, car loans and even car warranties, and don’t be afraid to negotiate. You can shop around for your auto loan on sites like LendingTree to make sure you’re not paying more than you have to in interest.

LendingTree
APR

As low as
3.09%

Terms

24 To 84

months

Fees

Varies

SEE OFFERS Secured

on LendingTree’s secure website

LendingTree is our parent company. LendingTree is unique in that they allow you to compare multiple, auto loan offers within minutes. Everything is done online. LendingTree is not a lender, but their service connects you with up to five offers from auto loan lenders based on your creditworthiness.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Jenn Jones
Jenn Jones |

Jenn Jones is a writer at MagnifyMoney. You can email Jenn at jennifer@magnifymoney.com

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Advertiser Disclosure

Auto Loan

Refinance Auto Loan Rates: 4 Best Places to Look in 2018

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Disclosure : By clicking “See Offers” you’ll be directed to our parent company, LendingTree. You may or may not be matched with the specific lender you clicked on, but up to five different lenders based on your creditworthiness.

When you’re looking to refinance your auto loan, it’s best to check around at multiple lenders for the best rates. Because many lenders today offer online loan options, you can check out the most current offers without putting in the actual legwork of shuffling from bank to bank in person.

See what rates your bank or credit union advertises. Check their websites or call them by phone. Often they’ll give rate discounts when you make automatic payments using one of their checking accounts, which is an easy bar to meet if you’re already a member.

Look at competing lender offers. Whatever your current bank or lender says, compare them to other deals by shopping online. There are dozens of auto loan options out there, but don’t be intimidated. We’ll help you find the best places in this guide. It won’t hurt your credit if you apply to a few different lenders for the same type of loan within 14 days, so don’t let that stop you from applying to one of the best car refinance companies if something looks good.

Look at what your current lender advertises. Not all companies refinance their own loans, but, for those that do, you might be able to refinance with the same company if you qualify for a lower rate or different term.

In this guide, we’ll show you the best places to start shopping for an auto loan refinance, as well as provide tips on how to decide when refinancing is the best move for you.

The best places to shop for an auto loan refinance

To help you choose the right lender for your refinance, we picked out some of the best places to refinance a car online. We started by analyzing more than 450,000 auto refinance applications for 17 lenders submitted through the LendingTree marketplace. We then compared and selected the top four lenders that 1. consumers were choosing most often and 2. offered the lowest average APR.

LendingTree

If you are looking to explore your options, LendingTree is a good starting place. Its online auto lender marketplace lets you compare up to five lenders side by side. You can find lenders that offer loans with APRs starting at 0.00% for New car financing. Motorcycle and RV financing and refinancing are available as well. People of all credit scores may apply. After completing a short online form, you may be able to see real interest rates and find out if you prequalify for any offers instantly.

Pros:

  • LendingTree partners with dozens of financial institutions that compete for your business. Depending on your circumstances, you may be matched with one or more lenders at one time, allowing you to potentially compare several offers and choose the lender that has the best rate and loan terms for you.

Cons:

  • Some of the lenders on LendingTree don’t offer prequalifications. You may or may not be matched to one that does a preapproval, not a prequalification, which would require a credit pull.

A prequalification is a not an automatic approval. Some auto lenders may not offer a prequalification at all and they may require you to submit an application for approval.

How to apply
Go to the LendingTree website and fill out the prequalification form. You’ll need the vehicle information, your information, including contact, loan, employment and income details on hand.

LendingTree
APR

As low as
3.09%

Terms

24 To 84

months

Fees

Varies

SEE OFFERS Secured

on LendingTree’s secure website

LendingTree is our parent company. LendingTree is unique in that they allow you to compare multiple, auto loan offers within minutes. Everything is done online. LendingTree is not a lender, but their service connects you with up to five offers from auto loan lenders based on your creditworthiness.

iLendingDIRECT

Like LendingTree, iLendingDIRECT is an online marketplace where you can potentially be directed to multiple auto lenders. Once you submit an application, the company will shop around for the best loan offers for you. It works with more than 20 financial institutions to offer a wide range of refinancing options, cash back loans, lease buyouts, and more. APRs start at 2.49%. Cars, trucks, motorcycles, boats and RVs can be refinanced; maximum terms and amounts depend on the type of vehicle.

Pros:

  • In some cases, you can skip the first month’s payment to give your wallet a break. If you don’t qualify for refinancing because of poor credit, iLendingDirect will work with you to help you improve your credit so you can qualify.

Cons:

  • Compared to other refinance marketplaces, iLendingDirect has relatively few financial institutions as partners.

To apply
Either call them or fill out a short contact form online and they’ll reply to you. You should have your personal contact information, your vehicle’s year, make and model, and your loan information at hand. With this information, they’ll find the best offers you’re pre qualified for, and you can choose from those which loan you’d like to apply for.

rateGenius

rateGenius is another online loan marketplace, but this one specifically works with borrowers seeking to refinance. They have a network of 150 lenders around the country. APRs start at 1.99% and loan amounts and maximum and minimum loan terms will vary depending on the type of vehicle.

The original loan term may be shortened or lengthened, though usually rateGenius will match the term of your new refinanced loan to the amount of time left on your original loan.

Pros:

  • The application takes a few minutes and refinance offers are ready within 48 hours. rateGenius itself doesn’t charge any fees to you for using their marketplace.

Cons:

  • rateGenius doesn’t refinance specialty vehicles. This plan also might not be the best fit for you if your income ebbs and flows from month to month.

To apply
Give them a call or fill out an online application form. You should have the following information ready.

  • Current loan information (lien holder name, monthly payment)
  • Vehicle information (make, model and style; VIN; mileage)
  • Employment information (along with a phone number for employment verification)
  • Personal information (SSN, name and contact details)

Autopay

The online loan marketplace AutoPay works to provide refinancing to people at different levels of credit. The minimum loan term is 24 months, while the maximum goes up to 84 months. You have to have at least $5,000 remaining on your loan and no more than $100,000. APRs start at 1.99%.

Pros:

  • This would be one of the best refinancing companies to go with if you have a small amount remaining on your loan or less-than-great credit.

Cons:

  • Depending on its lending partners at the time, Autopay doesn’t refinance specialty vehicles other than motorcycles.

To apply
Visit its website to fill out an online prequalification form. You’ll need your driver’s license, a payoff letter from your current lender, proof of insurance on the vehicle, proof of income and proof of residence. Autopay then works to find the best refinancing offers for which you’re pre-approved, and you can choose which to apply to.

Benefits of refinancing your auto loan

There are different ways to ditch a bad auto loan, or simply improve your payments to suit your current cash flow, and refinancing is a great way to do it.

Nicolas Ortiz, an auto insurance agent and adjuster at USAA headquarters in San Antonio, Texas, has worked in the industry since 2011 and did a stint as a finance manager at a car dealership for over a year.

“Most people look to refinance in order to lower their payment,” he said, “and you can get other benefits that come with it.”

Here’s more about the benefits of refinancing:

Get a better interest rate. If your credit has improved from when you first signed for the loan, you may qualify for a lower APR. “If you apply to refinance and get a lower APR, not only will your monthly payments be lower, but the overall interest that you pay will be lower, too, if you keep the same term.” Ortiz explained.

Decrease your monthly payment. If you’re strapped for cash, a lower car payment can make a big difference. It could give you some breathing room or prevent a repossession. To get a lower monthly payment, you may refinance with a lower APR, refinance for a longer term or both. Keep in mind your total interest cost may be higher over time when lengthening the term of the loan even if the APR is low.

Decrease your loan term to reduce interest payments. The less time you spend paying back a loan, the less you are likely to pay in interest payments. “To lenders, a greater length of time means a greater amount of risk; greater risk means more interest.” Ortiz told MagnifyMoney. Decreasing your loan term when you refinance will likely decrease your APR, but increase your monthly payment.

If you don’t want to commit to a bigger monthly payment when you refinance, one way to get a similar result is to simply refinance to get a better APR, then make monthly payments that are larger than the required monthly payment. This way you’re going to pay the loan off faster and pay less interest, but you have the option to make the lower required monthly payment if funds are tight.

Double-dip. If you have excellent credit and finance through a manufacturer when buying a new car, you usually have a choice of either getting a low APR, or getting large rebates from the manufacturer. “What you can do is if you qualify for manufacturer financing, take the rebates, sign up with them, and then turn around in a month and refinance with a credit union or bank that will give you a lower APR.” Ortiz said. You get the rebates from signing up with the manufacturer and the low rate from refinancing.

What to watch out for

A refinancing company may offer you add ons like GAP insurance or a warranty, which is also called a vehicle service contract (VSC). Make sure you know exactly how much each costs you and what it does. Don’t just say yes to a monthly payment that includes it.

GAP insurance stands for Guaranteed Asset Protection and covers the debt on the car that your auto insurance company doesn’t. For example, if you get a new car, don’t give a down payment, and crash the car a month later, what you owe on the car will be more than what the car is worth. GAP insurance covers the “gap” between what you owe and what the insurance company pays.

An extended warranty, also called a vehicle service contract (VSC), is an insurance product that will cover certain repairs to the vehicle. It is not your regular car insurance and won’t cover car repairs if you’re in a crash. It will generally cover repairs if something breaks from wear and tear.

For example, if your AC goes out because you live in a hot climate and like to make your car an ice box in the summer, the VSC might cover it. It depends on what type you get. It can be complicated, so, if you’d like one, know that you can negotiate on it and make sure you know what you get for the price you pay.

Questions to ask before you refinance an auto loan

While you can refinance at anytime, some people try to refinance when it may not make much of a difference, or may make a difference in a worse way.

Here are some questions to help you figure out if refinancing your auto loan is right for your situation.

Has your credit changed significantly?
If your credit’s gone up enough to push you into a higher score band (from “fair” to “good” for example), you should definitely check out the best auto refinancing companies to see if you can get a deal. You can use LendingTree’s free credit score tool to check your credit status. Note: LendingTree is the parent company of MagnifyMoney.

If you have a high APR auto loan because of poor credit, has your credit improved?
Many people who have poor credit and little choice but to sign for a high APR auto loan might ask when their credit will improve to the point they’ll be able to refinance at a lower APR — but it really depends on your specific situation. There are steps to successfully improve your credit. Making monthly payments on-time and in-full should help improve your score. Just have patience — lenders typically report payment behavior to the credit bureaus once every 30 days, but that can vary by lender.

If your credit hasn’t increased, or it’s dropped into a lower category, refinancing at this time probably isn’t right for you.

Do you want to add or remove a co-signer?
By refinancing with a new lender, you may have the ability to remove a cosigner from the original loan. However, you may struggle to get approved for refinancing if your credit is poor, you are underwater on your loan (meaning you owe more than the car is worth) or if you have missed several payments.

If you are looking to add a cosigner to a loan in order to get approved for better loan terms, make sure they understand the pros and cons. Their credit history can be positively affected by you making payments, but they will also be accepting liability for the loan if you fail to make payments.

Are you underwater or upside down?
Do you owe more on the car than it’s worth? If you do, you might want to think about paying down the loan before refinancing. You’ll be able to get the best deal in refinancing if your loan is equal to or less than the value of the car. However, if you know you can get a better rate now, even if you’re underwater, it might be worth doing so. That way, more of what you do pay on the loan goes to the principal and you can pay down the loan faster. Then, once you’re no longer underwater, you can refinance again for an even better rate. You’re not limited on the amount of times you can refinance.

Are you in danger of a repossession?
If you lost your job, had a family emergency, or just have a lot of trouble making payments, refinancing can make the best of a bad situation. You may not be able to finance into a loan that has a lower APR, but you may get a loan with a longer loan term, which will lower your monthly payments and give you more room to catch up.

Have auto loan rates dropped recently?
National trends in loan interest rates change based on national policy, politics and demand. Rates are expected to continue to increase this year, and indeed, rates hit a five-year high in February 2018. This isn’t a good trend for the auto loan consumer, as auto loan rates increase with it. If there is a sudden jump in the national rate for the season, consider refinancing a little later. If there is a sudden dip, like there was in the fall of 2017, it’s a good time to shop around.

When to consider refinancing

When to avoid refinancing

If the car is worth more than you owe on the loan.
Positive equity in a vehicle is attractive to lenders and will put you in the best situation to get a great rate.

If your credit improved significantly from the time you signed the auto loan.
By paying your obligations in full and on time, your credit might have gone up since you first got your auto loan.

If you’re in danger of a repossession.
Skipping and missing payments can have a negative effect on your credit. Refinancing could help you get a lower monthly payment you can afford and help you avoid trashing your credit score.

If you want to change something with a cosigner.
You could add on or take off a cosigner to the benefit of your interest rate.

If your credit has worsened significantly from the time you signed the auto loan.
Lenders base the interest rate heavily on your credit history and your credit score. Getting an auto loan with bad credit is not necessarily impossible, just more expensive.

If you owe a lot more on the loan than the car is worth.
If the car is worth a lot less than what you’ve promised to pay, the loan is riskier, thus making it harder and more expensive for you to get a loan — but there are ways to handle this type of situation.

If national interest rates rise by a point or more.
Interest rates on auto loans change along with the flux of interest on the U.S. 10 Year Treasury Note, because the loan terms are similar. If it shoots up, the lowest APR you can get will go up as well. Depending on your situation, it might be better to wait to shop for the best refinancing deal — or, if you want to refinance as soon as possible, go ahead and refinance and then keep on eye on national rates to maybe refinance again if there’s a big change.

If the car is brand new or really old.
Cars depreciate the most in the first two years. If you didn’t give a down payment, odds are that you’re underwater on your auto loan during that time period. Really old cars also aren’t really valuable to lenders and most have limits on vehicle age and mileage.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Jenn Jones
Jenn Jones |

Jenn Jones is a writer at MagnifyMoney. You can email Jenn at jennifer@magnifymoney.com

TAGS:

Advertiser Disclosure

Auto Loan

7 Reasons to Get a Preapproved Car Loan Before You Go to the Dealership

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

iStock
When you need a new car, most people start looking at car options online and then head to the dealership, thinking only of the vehicle itself. Then the salesperson shows up, and you go through the process of looking and test-driving and negotiating the price. When you finally get to the paperwork, you’re exhausted, right when you’re about to discuss the most important part of this whole transaction — the financing.

Wouldn’t it be nice if you had most of the auto loan part done before you even walked into the dealership? Not only is getting preapproved for auto financing the best way to ensure you’re getting the greatest possible deal on your loan, it’s also a simple way to expedite the entire car-buying process itself, helping you get in and out of the dealership and into your new ride faster.

Here, we’ll give you an overview of how to get preapproved for a car loan as well as all the benefits that come with it.

How does a preapproved car loan work?

When a lender gives a preapproval for an auto loan, it means the lender agrees to finance a car for you up to a certain amount, at a certain APR for a specific time.

Be aware that a pre-qualification and a preapproval are not the same thing. A pre-qualification is a soft offer in which most lenders do not pull your credit. If you have a pre-qualification and then do an official application, once you know the car you want, your actual loan offer might be very different, because lenders will do a hard pull on your credit and get a fuller picture of your credit history.

A preapproval, on the other hand, is a firm offer by a lender. Once you decide which car you want, the final loan offer should generally stay the same.

To apply for a preapproval, you can either go online directly to the lender’s website or go in person at a bank or credit union. You can request a preapproval from multiple lenders, which is a smart way to get the best deal possible. Some lenders, such as LightStream, even have a program where they’ll agree to beat any competitor’s rate you can find that’s lower than their rate.

If you are preapproved, the lender will tell you how much financing you qualify for, your loan APR and term. Now, you know exactly how much car you can afford before you start shopping for a particular model.

Why go through all that trouble before you head to the car lot? We’ll cover the benefits of approval next.

7 advantages of getting preapproved for a car loan

You know exactly how much car you can afford
You might try for a preapproved auto loan and find out you could actually borrow more than you thought, and get a better car than you planned. The reverse could be true, too. You could apply and find out you could only borrow some of what you thought. Either way, you’ll better know the vehicle price range you should be considering.

Remember the maximum loan amount the lender tells you that you’re preapproved for means just that — that’s how much the lender will give you to cover all the expenses of buying a car, not just the car’s sticker price. You have to account for the taxes and fees that will be charged as well. So if a lender tells you you can borrow a maximum $20,000, you should probably look for a car around $17,000, depending on your state’s taxes and fees.

You have the upper hand during negotiations
When you are preapproved for financing, you’ll know what you qualify for in terms of APR, so the dealership won’t be able to charge you a much higher APR. In fact, you’ll be able to tell the dealership you already have a loan preapproval, and challenge them to beat it and find a lower APR loan for you. This is a huge advantage over anyone who’s walking into a dealership without financing first.

You’ll know your rate and your monthly payment
If you know how much your loan will cost you, not just how much the car itself will cost, you can figure out your budget more accurately.

So if you think you’ll borrow $20,000 for 60 months, dividing it means your estimated monthly payment is $333. But that’s the monthly payment on the car; it doesn’t include the loan interest. If you know your APR is 5%, you can figure your actual monthly payment will be $350 by using an auto loan calculator like this one on LendingTree, the parent company of MagnifyMoney. (Note that some calculators have built-in assumptions with location and credit score that might give you a slightly higher payment than doing the straight math.)

A lot of the work can be done ahead of time
It’s hard to focus on paperwork and numbers when you’re tired from spending hours negotiating with a salesperson and test-driving cars at the dealership. By doing what is arguably the most difficult part of financing a car ahead of time, you’ve done your homework beforehand. All you’ve got to do is show the dealer your loan offer and see if they can beat that deal. Whether they can or not, you know you’re walking away with a good deal.

You’re not tied down to any one dealership
Getting preapproved for an auto loan gives you more freedom and time to check out different dealerships. By not being dependent on a dealership for financing, you can comfortably check out multiple dealerships if you want. With an auto loan preapproval, you know what your loan offer will be like without waiting for a dealership’s lender partners to respond.

You have a plan B
If the dealership isn’t able to beat your auto loan pre-approval or find a good offer, you shouldn’t be worried, because you already have an offer. Having a preapproved auto loan takes stress off you by serving as a fallback in case the dealership isn’t able to find a good loan offer for you or beat the one you have.

Less stress
Overall, having a preapproved car loan offer lessens the stress of making such a major purchase. You’re able to know what you qualify for, plan your budget and do the work ahead of time so you aren’t pressured to get everything done in one day. And you know you won’t be fooled into paying a higher APR than you deserve.

Where to find a preapproved auto loan

A lot of lenders offer preapprovals for auto loans, but not all. Check online to make sure the lender you want to apply to offers preapprovals. Banks, credit unions and online lenders could all be possible sources. You may want to start with your current bank to see what kind of deal they offer but typically, you can find the best rates at online lenders and credit unions. It won’t hurt your credit to apply to multiple lenders, as long as you do so within a 14-day window.

Here’s a list of the best auto loans in 2018 if you want to check them out. Most preapproved loan offers are good for one month, so don’t start applying if you’re not ready to buy a vehicle within a month from the time you complete an application.

It’s smart to apply to a few places so you can compare offers. Don’t just do one and think that’s the best you can get. If you would like to compare to multiple offers at once, you can check out LendingTree, where you could possibly be matched with up to five lenders.

Applying for auto loan preapproval

To get preapproved for an auto loan, you’ll need to have some information on hand for the application.

  • Personal details, such as address, date of birth and Social Security number
  • Employment information: where you work and how much you make each month
  • A basic idea of the vehicle you want, like if you want a new car or a used car
  • Loan information, such as how much you want to borrow and for how long
  • Account data: how much you have in your checking and savings account, and any other accounts, such as stocks, bonds and debts

What’s next? Buying a car with a preapproval

Take the preapproval with you when you go to officially pick out and buy your vehicle. Most preapprovals are good for 30 days. If you don’t use it to get a car by expiration date, you’ll have to apply again. Once you know exactly which car you want, you could do a couple of things.

The first is that you could tell the dealership about your preapproved auto loan and see if the dealer could beat what you already have. If the dealership can’t beat it, or if you already shopped around for your preapproval and know you want to go with that lender, then let your preapproval lender know exactly which car you want by contacting them on the phone or online. The lender will ask for a bunch of information on the car, such as the year, make, model, mileage and VIN.

Based on the car you want, the lender will tell you the final numbers with taxes and all, and guide you through finalizing the loan.

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Jenn Jones
Jenn Jones |

Jenn Jones is a writer at MagnifyMoney. You can email Jenn at jennifer@magnifymoney.com

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