Buying a car? Here’s how to be more prepared to hit the road.
February 25, 2021
If you are thinking about buying a car, there are many things to take into consideration, such as what type of car you can afford, where to shop for your car, and what financing you will qualify for. There are also pitfalls you should avoid in the process to make sure you get the best deal you can. Here are a few to consider.
Understand Your Financial Situation
Figure out how much of a car you can afford first. You can determine this by looking at your income versus your expenses, or your budget, and see what monthly payment amount is possible. Make sure to include the cost of auto insurance and gas in your calculations of a monthly car payment.
Knowing your credit score is also important. When you are ready to look for a car, this information will help you determine what interest rates you will qualify for when applying for a car loan or lease. The higher your credit score, the more favorable the interest rate you may receive, and the more money you’ll save. Your financial institution may be able to provide your credit score to you.
Credit scores range from 300 to 850. If you need to improve your score, make sure to pay all bills on time, use less than 30% of your credit limit on current loans you have, and diversify you credit holdings, meaning have a mix of credit such as a credit card, insurance, and a car loan.
Avoid Paying More Interest
You can avoid paying more interest on your car loan by:
- Putting money down toward the car purchase. When you put as much as 20% down, your loan term can be shorter due to reduced cost of the car. Then, you will pay less interest and save money.
- Keeping the loan term as short as you can; the longer you take to repay a loan, the more interest you’ll pay. And sometimes with a longer term loan you pay a higher interest rate which will cost you more money.
If your credit score has improved or interest rates have gone down, consider refinancing your car loan. Be sure your current loan does not have penalties for paying off the loan early, ask about any fees involved with refinancing, and do not extend the loan term with a refinanced loan. Your goal when refinancing your auto loan should be to receive a lower interest rate and pay down the loan over the same or a shorter term.
Are you ready to hit the road? Visit msufcu.org/vehicleloans for more information.
Tags: Buying a Car, Borrowing Money, Money Management