Financing Using A New Car Loan

Rule number one: If you decide to finance your car, be aware that financing at the dealer's may not be the best new car loan deal you can get. Contact lenders directly, especially on the Internet which tends to have the lowest rates.

Always Compare Offers
Don't waltz in and buy a car without comparing other loan quotes against the dealer's financing. Compare the annual percentage rate (APR) and the length of the loan. Don't focus only on the monthly payment. The total amount you will pay depends on:

The price of the car you negotiate

The APR

The length of the loan

Differences to any variable can mean hundreds, even thousands of dollars. Some dealers offer very low financing rates for specific cars or models, but won't negotiate on the price. To qualify for the special rates, you may be required to make a large down payment. It’s sometimes more affordable to pay higher financing charges on a car that's lower in price or to buy a car that requires a smaller down payment. Run the numbers to see.

Trading in Your Old Car

Discuss a trade-in only after you’ve negotiated the best possible price for your new car; keep the negotiations separate

Don't negotiate about trade-in until you’ve researched the value of your old car

Check the library for reference books or magazines that can tell you how much it is worth

Use the information to get a better price from the dealer

Consider selling it yourself; you generally will get more money than if you trade it in

Credit Insurance
Some dealers and lenders may ask you to buy credit insurance to pay off your loan if you should die or become disabled. Beware of this. Before you buy credit insurance, consider the cost, and whether it’s worthwhile. Check your existing policies to avoid duplicating benefits. Credit insurance is NOT required by federal law. If your dealer requires you to buy credit insurance for car financing, it must be included in the cost of credit. It must be reflected in the APR, not tacked on as an extra charge. Your state Attorney General also may have requirements about credit insurance. Check with your state Insurance Commissioner or state consumer protection agency.

Considering a Service Contract
Service contracts that you buy with a new car provide for the repair of certain parts or problems. These contracts are offered by manufacturers, dealers, or independent companies and may or may not provide coverage beyond the manufacturer’s warranty. Remember that a warranty is already included in the price of the new car while a service contract costs extra. Be very leery of these. Dealers love these contracts because they tend to work in the dealer's favor.

Before deciding to purchase a service contract, read it carefully and consider these questions:

What’s the difference between the coverage under the warranty and the coverage under the service contract?

What repairs are covered?

Is routine maintenance covered?

Who pays for the labor? The parts?

Who performs the repairs? Can repairs be made elsewhere?

How long does the service contract last?

What are the cancellation and refund policies?

Before you sign a contract to purchase or finance the car, consider the terms of the new car loan financing and evaluate whether it is truly affordable. Before you drive off the lot, have a copy of the contract that both you and the dealer have signed and be sure that all blanks are filled in.

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