Advertiser Disclosure

Auto Loan, Reviews

Review: Navy Federal Credit Union Auto Loan

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It may not have been previewed, commissioned or otherwise endorsed by any of our network partners.

Written By

Reviewed By

Are you shopping around for your best auto loan rates before you buy a car? If not, you should be.

It helps to get an idea of the type of loan you could be approved for before you make a trip to the dealership. Plus, credit unions like Navy Federal Credit Union may offer some of the best rates compared to traditional banks. Navy Federal auto loan rates range from 1.79% to 17.99% for those eligible for membership, including active-duty military members, veterans, retirees and their families.

Navy Federal auto loan details

APRs (annual percentage rates) start at 1.79% for terms up to 96 months. Like other lenders, however, some of the lowest Navy Federal auto loan rates go to new-car buyers who choose the shortest terms. The credit union has competitive APRs for used cars, too, particularly late-model vehicles. The maximum loan term for used vehicles is 72 months. Used or new, loan amounts start at $250 — there is no maximum.

Starting APRs for New, Used and Refinance Car Loans
Vehicle AgeUp to 36 months37 - 60 months61 - 72 months73 - 84 months85- 96 months
New, up to 7,499 miles1.79%2.19%2.29%4.69%5.59%
Used, within 3 model years, 7,500-30,000 miles2.29%2.39%3.89%N/AN/A
Used, over 30,000 miles3.89%3.89%4.29%N/AN/A

Long auto loans

We don’t recommend an auto loan longer than 72 months. The longer your term is, the more you’re going to pay over the life of the loan. Navy Federal offers a 96-month auto loan, but no one wants to be paying back a car loan for eight years. Stick to your budget and remember not to focus solely on the monthly payment — take the overall cost of the loan into consideration.

The fine print

There are no additional fees associated with a Navy Federal auto loan. Rates are based on your credit (having a FICO Score over 700 helps) and, as mentioned earlier, the year model of the car you’re looking to finance. You may use Navy Federal auto loans to buy from dealerships and private parties.

How to apply for a Navy Federal auto loan

To apply for a Navy Federal car loan, which is possible to do online, you’ll first need to be a member of the credit union. We’ll talk more in a minute about membership requirements, but here’s what you’ll need to start the auto loan application process.

Information needed to apply for an auto loan

For each person that is to be on the loan (including a cosigner, if there is one), you’ll need to provide their name, address, employer and income. From there, the level of information you need depends on where you are in the car-buying process.

If you’re still shopping for a car and looking for a preapproval, you’ll need:

  • Amount you want to borrow. Leave room for taxes and fees, which usually add up to 8% to 10% of the car’s value, and subtract the down payment you plan to make. If possible, we recommend paying cash for taxes and fees instead of rolling those costs into your loan.
  • Trade-in details. If you have a trade-in vehicle, you’ll need to provide its VIN (vehicle identification number) or year, make, model and trim.
  • Loan term. Preferred number of months for repaying the loan.

If you already know the exact car you want to buy, you’ll need to provide additional information:

  • Details of the car you want. Its exact mileage, VIN, year, make, model and trim.
  • The seller’s information. The name and address of the dealership or private seller.

Navy Federal membership requirements

Those with military connections are eligible to join Navy Federal Credit Union. This includes family members of and those who are:

  • Active duty in the Army, Navy, Marines, Air Force, Coast Guard, National Guard or Space Force
  • A member of the Delayed Entry Program
  • A Department of Defense (DoD) officer candidate or ROTC member
  • DoD Reservists
  • Retirees from any service branch

You may also qualify if you’re:

  • A DoD civilian employee or retiree
  • A federal government employee assigned to a DoD installation
  • A DoD contractor assigned to a federal government installation

Navy Federal defines family members as parents, grandparents, spouses, siblings, grandchildren, children (adopted children and stepchildren included) and members of your household.

Pros and cons of a Navy Federal auto loan

Navy Federal auto loan rates are among the lowest we’ve seen, even among fellow credit unions, which tend to have lower APRs than many banks. But membership criteria is stricter than other credit unions, so a Navy Federal car loan won’t work for everyone.

Pros of a Navy Federal auto loan

  • Competitive APRs
  • APR discount: Active-duty and retired military members with direct deposit could get a 0.25 percentage point discount off even the lowest rates.
  • Auto-buying program: Shop for and finance a car, all in one place, through Navy Federal’s auto-buying program. You may be eligible for member-only pricing on new cars. If you’re car shopping while serving overseas, Navy Federal offers a car-buying program for you, too. Delivery is possible stateside or to your overseas duty station.

Cons of a Navy Federal auto loan

  • Strict membership requirements: If you don’t have a connection to the U.S. armed forces, you might not be eligible to join.
  • Not instant: In a world of near-instant gratification on the internet, it seems odd that you have to go to a branch in person or wait to get your auto loan check in the mail. Other lenders will overnight a check to you or arrange for electronic delivery.

Comparable auto loans

If you don’t meet Navy Federal’s membership criteria, there are still great options out there for an auto loan. We encourage you to reach out to your local credit union or take a look at these other top auto lenders listed on our site:

Consumers Credit Union

  • APRs as low as 2.69%
  • Terms up to 84 months
  • Loan amounts up to $250 - $100,000

Capital One

  • APRs as low as 3.39%
  • Terms from 36 to 84 months
  • Loan amounts from $4,000

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.

Advertiser Disclosure

Auto Loan

Why You Shouldn’t Take Out an 84-Month Auto Loan

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It may not have been previewed, commissioned or otherwise endorsed by any of our network partners.

Written By

Reviewed By

If high monthly payments keep you from buying the car you want, you may be tempted to lower your payments by signing up for a 72-, 84- or even 96-month term loan.

While financing with an 84-month auto loan can lead to a lower monthly payment, you should be aware of the risks. Depending on your financial situation, it could be a way to get the vehicle you want, but you could pay more than you planned.

Many auto lenders, including banks, credit unions and online lenders, offer 84-month financing. Be sure you know what’s at stake before you sign up for a loan term that long.

6 reasons an 84-month auto loan is a bad idea

Many financial experts say an 84-month auto loan is a bad idea. You will pay more for the car than you would with a shorter loan even though the monthly payments will be less than the shorter loan term. According to Edmunds, nearly 70% of new car loans in the first half of 2020 were longer than 60 months, with the average loan term hitting 70.6 months.

That’s due in large part to the rising cost of vehicles. According to Kelley Blue Book, the average transaction price of a new car has risen to $38,378, and popular vehicles, such as crossover SUVs and pickup trucks can be even more.

1. Higher interest charges

Typically, interest rates for an 84-month loan are higher than average car loan interest rates for 60- or 72-month loans. After all, 84 months is 7 years, which is a long time to drive a car.

2. Pay more in interest over the life of the loan

The loan term is longer, so you will pay more in interest for an 84-month loan compared with a shorter term. Overall, the car will cost more to own by the time the loan is paid off.

3. Higher credit score required

Longer-term loans usually require a good credit score, according to Melinda Zabritski, senior director of automotive financial solutions with Experian. Lenders take on more risk with a longer loan, so they want to lend to people who have a track record of paying their bills.

4. Payments may outlast your warranty

Most new-car warranties run 36 months, with some running up to 60 months, or even longer for some components such as the drivetrain. If you keep a car for the full 84 months, you’ll own it after the warranty runs out, which means you’re on the hook for all repair costs.

5. Repair costs

As you drive your vehicle and the miles add up, it’s more likely it will need repairs and maintenance, such as fluid changes, timing belts and other things that require the skills of a mechanic. The higher the mileage ticks, the more likely it is that important components (like transmission and engine) will start to require replacement and significant repair.

“The longer the loan term, the more interest you will pay over the life of the loan and the less money you may be able to set aside in the long run for maintenance and repairs as the vehicle ages,” said Joe Pendergast, vice president of consumer lending at Navy Federal Credit Union.

6. Negative equity

Otherwise known as being upside down, negative equity happens when you owe more than your car is worth. Unless you pony up a substantial down payment, you’ll likely be upside down with an 84-month loan term. That’s because the car’s value will depreciate faster than your paying down the principal of the loan. With a long-term loan, you pay less principal each month, so it takes longer to pay off the balance.

Many people like to get into a new car sooner than 84 months. So they’re stuck with a car or truck that’s not worth as much as they owe on it when it comes time to trade it in.

3 instances when an 84-month auto loan might make sense

Depending on your situation, an 84-month loan term might make sense. Perhaps you really need a new vehicle to accommodate a changing family situation. Or maybe you’ve relocated to a snowy climate where you need a four-wheel-drive SUV. In some cases, an 84-month loan may be your best option.

1. Affordability

A long loan term may be the only way you can purchase a new vehicle that fits your needs. If you’re trying to make room for a growing family or need to buy a truck for work, there may not be many other options. With a long-term loan, you can make the monthly payments fit your budget. Keep in mind you’ll actually be paying more for the vehicle over time.

2. Other debt needs to be paid down first

Depending on your financial situation, you may have debt with higher interest rates or a more substantial loan balance. You could put the money you’re saving on the car payment toward other loans. “A longer term on your car loan may provide more financial flexibility in your budget by giving you a lower monthly payment,” Pendergast said.

3. Incentive financing

During the COVID-19 shutdowns, some car manufacturers offered 84-month loans at 0% financing. While these terms may seem like a good deal, be aware that it may not be the best deal. If a manufacturer also offers a cashback incentive on the car, it may make more sense to take the incentive, apply it to the down payment and take a loan with a higher interest rate, Zabritski said. That way, you’re financing less principal, which can keep the payment down but may also cost less in interest.

A Tale of 3 Auto Loans
Purchase PriceLoan TermAPRTotal Interest Paid*
$25,00060 months8.21%$5,566
$25,00072 months8.21%$6,745
$25,00084 months8.21%$7,951
Total savings by using a 60-month loan term$2,385

*Does not include down payment, tax, title and registration fees. Based on a credit score of 680+.

Adding tax, title and registration to the loan amount will increase the amount of interest you pay. If you make a down payment or have a trade-in, the amount you borrow will go down.

How to make the most of a long-term auto loan

If you must get an 84-month auto loan, there are some steps you can take to make the most of it.

Compare rates

Usually, interest rates are slightly higher for 84-month terms compared with 60- and 72-month terms. Compare rates and use an auto loan calculator to crunch the numbers. A shorter-term rate with a lower interest rate will mean a higher monthly payment but lower overall cost. Shop around for interest rates and get multiple offers from lenders to compare.

Buy now, make extra payments

You could make additional payments to pay the loan off early or build up equity. If you’re buying a vehicle at the average price of $38,378, an 84-month loan would be $602.19 per month, and you’d pay $12,206 in interest. If you pay an extra $100 per month, you could save $2,298 in interest and own the car in just over five years instead of seven years.

Buy now, refinance later

You drive off the lot with the car you want now with an 84-month loan. If your financial situation improves, you could refinance for a shorter term to save on interest.

Make a large down payment

You could pay 20% or more of the purchase price upfront. That reduces the amount you borrow. However, you should also avoid financing fees such as taxes, registration and dealer fees, and add-ons such as the dealer’s paint protection coating or vehicle service plan.

When you put more down on your vehicle, you’re less likely to become upside down, and you may be able to avoid guaranteed auto protection or GAP insurance. GAP insurance covers the difference between the loan balance and the car’s value in the event the car is a total loss.

Buy used

You can reduce the amount you borrow by buying a used car that costs less than a new one. According to Experian, the average payment for a used vehicle is $391 compared with $554 for a new one. You can save some money and have a more affordable payment if you choose to buy a used vehicle. There are however, some trade-offs to buying used, too. There are some 0% and other low-rate financing deals available for used cars at shorter terms, such as 36 months that could reduce your payment if you qualify.

Understanding the auto loan process

Most people go shopping for a car and find one they like before they think about financing. That’s backward. You’re more likely to fall for dealership sales tactics and buy a more expensive car than you can afford when you shop this way.

Instead, get preapproved for a loan with a bank, credit union or online lender. The dealer may have lenders that can help you get preapproved before you select your car.

With a preapproval, you’ll know how much you can borrow to pay for the car and what the monthly payment would be. You’ll have a loan amount and interest rate that you can use to compare with the financing options from the dealer and other lenders. You’ll be prepared to make an informed decision when you find the car you want.

Lenders look for a high credit score for an 84-month loan term, so check to see what your credit might be before applying. That way you’ll know which lenders might give you preapproval.

How to get preapproved for an auto loan

With just a little preparation, you can get preapproved by a bank, credit union or online lender. You can research rates online to get an idea of what’s being offered in the market. Lenders will use your creditworthiness to determine the interest rate they will offer you. Keep in mind that the credit score for an auto loan is a little different from other loans.

1. Gather your documents

Get your information together before you visit a lender or apply online. You’ll need documentation like:

  • Personal information, including name, address, phone number and Social Security number.
  • Employment Information, such as your employer’s name and address, your job title and salary, and length of employment.
  • Financial information, including your current debts, your living situation, what kind of credit you have available and your credit score.
  • Loan information, including the amount you expect to finance and the length of the loan term you want, as well as any trade-in or down payment information.

2. Apply

Armed with your documents, apply for your auto loan online and in-person with a few different lenders. Shop around for the best auto loan rates. If you’re shopping for a car, multiple credit inquiries made within 14 to 45 days won’t hurt your credit score any more than a single inquiry would.

3. Shop with your preapproval

If you’re successful in getting preapproved, you’ll receive a loan quote that shows much you qualify for, the interest rate and the length of the loan. You can use this information when you go shopping at the dealer. You’ll know how much you can afford to spend on the car. And you’ll be able to compare financing offers.

4. Consider a cosigner

If you have less than good credit, a cosigner could help you qualify for a loan that you may not be able to get on your own. Using a cosigner with a good credit score could help you qualify for a lower interest rate as well.

Keep in mind the cosigner is responsible for paying the loan if you don’t pay it. That could negatively affect their credit score as well as yours. If the cosigner is a friend or family member, make sure they’re aware of their commitment to the loan.

Auto loan contract traps

Be aware of a few financing traps dealers may use while you’re shopping for a car. If you can recognize what the dealer is doing, you can avoid paying more than you planned.

Paying too much for the car

Research the manufacturer’s suggested retail price (MSRP) of the vehicle you’re looking at, and any incentives that may be available. The sticker price can vary by trim levels and options, so research the options you want. Many cars sell below sticker or MSRP except for a few high-demand models. Be wary of dealer add-ons that are often presented at the final stage of negotiation, such as:

  • Nitrogen in the tires
  • Upholstery and paint protection packages
  • Vehicle service contracts
  • Window tinting
  • Window vehicle identification number (VIN) etching packages

Taking too little for your trade-in

Research your car’s value on sites like Kelley Blue Book and Edmunds to see the market price for a trade-in in your area. If you still owe money on the car, and especially if you owe more than the car is worth, you could have less negotiating power.

Focusing on monthly payment

Don’t lose sight of how much the car will cost you through the life of the loan. That’s where the 84-month loan term may look attractive but could cost you several thousand dollars on a new car. Look at the total cost of the purchase price plus the total amount of interest before you settle on a loan term.

Ignoring your budget

This where the loan preapproval will help keep you on track. Have a good sense of how much you can borrow and how much you can afford to pay each month considering your other obligations.

When it makes sense to lease vs. buy a car

Leasing can be a good alternative to a longer loan term. You could drive the same car for a lower monthly payment, although leases are typically 36 to 37 months. Before you lease, understand the pros and cons compared with buying a car. An increasing number of people are turning to leasing for their new vehicles, according to Experian.

One of the reasons is the average new lease payment is $466, while the average monthly payment for a new loan is $569, Zabritski said.

Pros and Cons of Leasing vs. Buying a Car
LeasingBuying
Monthly payment Payments on a lease are $100 less on average compared to buying, according to Experian.Payments are more for a loan, but once it's paid off, you own the car.
Warranty coverageDuring the average lease of 36 months, your car will be under full warranty coverage.You can purchase extended warranties or vehicle service contracts. Otherwise, you're responsible for maintenance costs.
Financing term You can move to a new vehicle at the end of the 36-month lease instead of being locked into a long-term car loan.At the end of the loan, you can sell, trade in or keep the car.
MileageLeases typically allow 10,000-15,000 miles per year, and you'll pay more for additional miles, either upfront or at the end of the lease.Unlimited miles when you own the car.
Wear-and-tear feesYou'll pay extra for upholstery stains, paint scratches, dents, and wear and tear above the normal when you turn the car in.Wear and tear could lower the resale or trade-in value.
ValueThe value of the car is set at the end of the lease and barring high mileage or excessive wear-and-tear, it shouldn’t change.The car’s value may not be as much as you owe on it and can continue to depreciate as the car ages.

FAQs about 84-month auto loans

Depending on your credit score and other factors, interest rates on car loans vary from low manufacturer incentives of 0% up to the maximum allowed interest rate in your state. The average rate for new-car buyers is 5.61% while used car buyers pay an average 9.65%, according to Experian.

You can usually finance a new car for 24 months up to 96 months or eight years. The average loan term is 70.6 months.

Used cars can usually be financed up to 72 months, although it can depend on the age and mileage of the car.

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.

Advertiser Disclosure

Auto Loan

How to Handle an Upside-Down Car Loan

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It may not have been previewed, commissioned or otherwise endorsed by any of our network partners.

Written By

Reviewed By

Having an upside-down car loan means you owe more than the car is worth — it’s also called having negative equity. This means that if you decide to sell or trade in your car before the loan is paid in full, you may have to add the balance to the loan of your next vehicle.

There are, however, ways to avoid getting upside down in the first place, or improve your financial situation if you want to get rid of the vehicle before it’s paid off.

Determine if you have an upside-down car loan

Being upside down in a car loan is becoming more common, as cars become more expensive and loan terms get longer. In April 2020, the share of new car sales with a trade-in involving negative equity hit 44%, and the average amount of negative equity reached $5,571, according to Edmunds. The average cost of a new car has risen to $39,000, making it more likely people will take long-term loans up to 84 months or more, said Ivan Drury, senior manager of insights at Edmunds.com. Here’s how to figure out if you’re underwater on your car loan, and if so, by how much.

Step 1: Figure out how much you owe

Ask your lender for the payoff amount. The payoff will be more than the loan balance because it includes interest until the time you completely pay the loan and any prepayment penalties. The payoff amount is usually calculated for a period of time as determined by the lender (such as within the next 10 to 15 days, as an example). If you wait longer than that, the payoff amount will change.

You may be able to request a payoff amount through your finance company’s website. If not, you will have to call them directly.

Step 2: Look up your car’s value

Use online sites such as Kelley Blue Book or NADAguides to find your car’s trade-in value. Some sites will also provide an average figure for a private sale in addition to the trade-in value.

Online car-buying sites such as Carvana, Vroom and Shift will also provide a value — and unlike valuation sites like Kelley Blue Book and Edmunds, these sites will actually purchase your car. Selling an upside-down car to CarMax or other physical dealer is a possibility, too. Each site or dealer will likely give a different price, so the actual amount will be unknown until you talk to a dealer about a trade-in or sell it yourself.

You’ll need to know the car’s make, model, year, trim level and mileage. You’ll also be asked to rate your car’s condition, which can be subjective — one person’s excellent might be another person’s average. Use an online quiz, like the one KBB offers, to describe the condition of your car accurately.

Step 3: Calculate your negative equity

Calculate the negative equity to figure out how much you owe compared to the car’s value. Use your best estimate for the car’s value to compare against the payoff amount.

Subtract the estimated value of your car from the total balance you owe. For example, if the value of your car is $22,000, but you owe a $25,000 balance, you are $3,000 underwater on your loan.

Once you figure out if you’re upside down, you can develop a plan about what to do next.

How to handle an upside-down car loan

There are two basic strategies you can use to improve your situation if you find yourself in an upside-down car loan. You can continue making payments until the loan is paid off, or you can sell or trade in the car. It’s not impossible to get out of an upside-down car loan, but it could be costly.

Refinance to a new loan

One way to handle an upside-down car loan is to refinance into a new loan. Perhaps your financial situation has improved, and your credit score is higher now. You could refinance with a lower interest rate, which reduces the amount you will pay for the car. However, if you’re upside down, you’ll have to finance the negative equity in the new loan, which will increase the amount of money you’ll need to borrow, or pay off the difference upfront. Before choosing this option, make sure that you can afford the payments on a new, higher loan amount.

Sell your car

You can sell your car and use the proceeds to satisfy the loan. If you’re upside down, you’ll have to add some cash to equal the loan payoff amount. You can sell your car to a private party or use an online car-buying service. Either way, the buyer will pay you directly, and it’s your responsibility to send the money to your lender.

Trade in your car

You can trade in your car at the dealer when you buy another vehicle. If you’re upside down on the loan, the dealer may add the balance to the new car loan or deduct the amount from any down payment you make. If you decide to lease your next car, you can roll the negative equity into the lease payment.

Fair warning, however: If the dealer advertises that they will “pay off your loan no matter what,” you should tread carefully. A deal like that means they will take care of paying the balance to the lender, so the lien is satisfied for the trade-in. They won’t pay off your loan out of the goodness of their heart, though. You’ll still be on the hook for the difference between what your car was worth and what you owed on the loan. The dealer will add the balance from your upside-down loan to your new loan.

The Michigan Attorney General’s office warns consumers to make sure they understand how the dealer will pay the loan, such as in a lump sum or monthly. This is important because regardless of what a dealer tells you, your name is on the loan paperwork, and you are thus responsible for satisfying payment on it. If a dealer pays off the loan monthly, any late payments they make could impact your own credit, since your name is on the paperwork. It’s best to get the terms of payment for your old loan in writing, to protect yourself from any potential problems down the road.

Avoid multiple loan rollovers

Say you have a two-year-old car with a loan term of 72 months. You decide that you want to trade in that car for a new minivan, for example. Imagine that your loan payoff is $25,000, but the dealer will give you only $22,000 for your trade-in. That means you have $3,000 in negative equity. For your new car, say you borrow $30,000. But then the dealer adds your negative equity to the loan amount, so you end up borrowing $33,000. That will make your monthly payment higher than it would be without the negative equity, since you’ll need to take out a larger loan. If you decide to trade in the new car in a couple of years without paying it off, you could end up with even more negative equity and wind up even more upside down. You may not even be approved for a new loan.

“Depending on how much they’re willing to give you for the vehicle’s value, you may or may not get approved,” Drury said, noting that a vehicle could be valued very low, resulting in a high loan-to-value ratio, such that obtaining a loan could be especially difficult.

Ride out your current loan

Unless you really need a new car — maybe your family is expanding and you need a minivan — pay off your current loan. Then, you can have the freedom to sell or trade it in and use the equity of the car any way you want, or at least keep an eye on your equity situation. Hopefully, at some point in the life of the loan, you will have positive or neutral equity and can trade in the car.

How to avoid an upside-down car loan in the future

Make a larger down payment

New cars depreciate about 30% in the first year, then about 8% and 7%, respectively, in each of the next two years. If you put down 20% of the total purchase price, including taxes and dealer fees, you can reduce your loan amount so you’re not underwater.

Choose a car that holds its value

Some makes and models hold their value better than others. Car research sites like Kelley Blue Book and Edmunds publish lists of car brands and models with the best resale value. Look for a car that won’t depreciate as quickly as others.

For example, KBB predicts that most 2020 models will retain only 37% of their value after five years, though it also notes that the 2020 Toyota Tacoma will retain as much as 61% of its MSRP after five years of ownership. The higher the estimated resale value in five years, the better chances you have of avoiding an upside-down car loan.

Opt for a shorter loan term

While the average new car loan term is now about 70 months, according to Experian, choosing a shorter term will reduce the amount of interest you pay. With a longer-term loan, you pay less toward the principal each month. That leaves a bigger balance that may exceed the value of the car. It’s a good idea to finance the car for only as long as you intend to keep it.

Shop around for the lowest rate

Use online tools to shop for the lowest interest rate available to you, as it’ll help you pay more toward the principal each month. Shop around for a car loan before you go to the dealer — that way, you can compare rates and feel confident you’re getting a good deal.

If you qualify for an incentive, 0% or another very low rate, you are effectively refinancing your negative equity at that rate, Drury said. For example, say you owe $30,000 on your car, but the value is $27,000. If you trade it in on a new vehicle with a 0% incentive rate, you are financing the $3,000 negative equity at 0% instead of a standard interest rate.

Avoid add-ons

Whenever possible, avoid add-ons, especially those added by the dealer. As you’re finalizing the purchase, the dealer will present you with options such as fabric protection, extended service contracts, nitrogen in the tires and so on. These will add to the cost of the vehicle, but they don’t add to the value of the car. You can also opt for a lower-level trim package that doesn’t have a sunroof, leather upholstery or custom wheels, though this will lower the car’s resale value.

Consider leasing

Leasing terms are shorter than most loans for new cars, so if you plan on keeping a car for just two or three years, leasing might be a better option. However, leasing does have its drawbacks, such as not building equity in the vehicle.

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.