There’s no better feeling than browsing a new car lot, choosing the perfect vehicle, and taking it home with you.
While this is a fun process – even if you feel some pressure from the salesperson – you can’t drive off the lot until you first pay for your vehicle. And for most buyers, this means securing a new car loan.
A USA Today article from September 2019 touches on a few important details regarding the buying experience:
The average amount borrowed per new vehicle purchased in August was $32,590, up 5.2% from a year earlier, according to car-buying advice site Edmunds. The average interest rate was 5.8%, the same as a year earlier, but average loan terms went from 68.6 months to 69.6 months.
There are a few points of importance in this article:
- Consumers, on average, are borrowing more than $32,000 to purchase a new vehicle (a number that continues to climb)
- The average interest rate was hovering around six percent (although this changes based on economic factors and personal finances)
- The average loan term is right around 70 months
With these details in mind, you now have three important questions to answer:
- How much money are you willing to spend on a new car?
- What steps will you take to secure the best rate on a new car loan?
- What term are you most interested in?
For the sake of this article, we’re going to focus on how to secure the best loan for your new car purchase. Generally speaking, you have two options:
- Let the dealer’s financing department help you find the best rate
- Conduct your own search by contacting both local and national banks and credit unions
There’s nothing wrong with first talking to the dealer to see what they can do for you. This takes a lot of work off your plate, as they’ll shop around your financial situation to (hopefully) secure you the lowest rate.
Here’s the problem with this: your dealer has the ability to mark up the interest rate to make money, meaning you may end up with a higher rate than you should.
If this doesn’t seem like a big deal, consider the following:
- A $32,000 loan at four percent for 72 months: $501
- A $32,000 loan at five percent for 72 months: $515
So, even if it’s only one percent, you still end up paying an extra $14/month. This works out to $168/year or $1,008 over the course of your loan.
Now what do you think?
After hearing what your dealer can do for you, shop around on your own. Call your local bank and make contact with several others online. If you find a better rate, go with it. If you don’t, you can always fall back on what the dealer has to offer.
In a perfect world, you’d have enough money on hand to pay cash for your new car. But for most people, this isn’t an option.
If you find yourself seeking financing, follow this advice to secure a competitive rate from a reputable lender.