First things first.
When you’re getting ready to purchase your next vehicle, plan to shop ahead for your auto loan.
How much can I afford? How much can I pay as a down payment? Do I want or need a cosigner? How much is my trade-in worth? These are all questions you should be asking yourself before shopping for the vehicle, according to the U.S. Consumer Financial Protection Bureau.
“Planning ahead to shop for your loan can save money, time, and stress,” says the CFPB. “Making decisions early gives you time to think about your alternatives, and helps you make the right choices.”
To get started, you’ll need to create a budget, the CFPB says.
“You have a better chance of ending up with a loan you can afford and are able to pay on time. A budget also helps you think about ongoing costs such as vehicle maintenance and insurance. You want to be sure that there is room in your budget for both the loan and the other costs of ownership.”
If you’re going to run into financial challenges with the purchase, now is the time to figure that out.
Budgeting before you shop for the vehicle also gives you a chance “to think about ways you can reduce the cost of your auto loan,” according to the CFPB website. That may include saving for a larger down payment, buying a less expensive vehicle, getting fewer add-ons, features or options, deciding if you want or need a cosigner and/or working to improve your credit score.
And if you plan to trade in your current vehicle, you will need to figure out how much it’s worth. Then “you can decide whether to trade it in or sell it yourself,” says the CFPB.
“If you trade it in at a dealership, you and the dealer will decide on the value that will be credited towards the purchase price of your next vehicle. If you sell it yourself, you can use the money you get as a down payment. … Make sure during any negotiations that you consider whether you are getting fair value for your trade-in and whether you are able to fully pay off the old auto loan.”
Now that you know how important it is to prepare to finance your purchase, you’re ready for more of the CFPB’s advice on financing a vehicle over the next three weeks, including:
- Exploring loan choices because hundreds, even thousands of dollars are at stake [Part 3].
- Knowing what’s negotiable – and it’s not just the price of the vehicle or the interest rate [Part 4].
- Understanding how to close the deal before you drive away [Part 5].
“Take control of your auto loan,” says the consumer protection bureau on its website. “Learn how to prepare so you can save money, reduce stress, and get the auto loan that’s right for you.”
In other words, know before you owe.