According to "Where to Get the Money," a 2005 Bankrate.com article, about 70 percent of new car purchases involve some type of financing. If you are in a position where you need to finance the purchase of a new car, be prepared so the lending company does not take advantage of you.
New Car Financing
One of the advantages of shopping for a new car is that the interest rate on your loan should be lower than rates for used cars, according to Bankrate.com. When you are ready to shop for a car, spend some time shopping for the financing first. You do not have to take the deal that is offered by the auto dealer. Instead, you can shop rates at lenders online and in person first.
Loan Specifics
When you work with a lender, whether at the dealer or elsewhere, get specifics about the loan before you close the deal. For example, find out if the loan has prepayment penalties or other hidden charges. Ask exactly what your interest rate is, what the payment is and how many payments you have to make. Find out if the deal is contingent on finding financing. In some cases, you might not actually have a loan when you leave the dealership. The dealer then looks for a lending company that will finance the deal.
Zero Percent Financing Offers
In the auto industry, it is not uncommon for dealers to offer 0 percent financing on new cars. While this might sound particularly attractive if you have good credit, it may not be the best option for you. One of the issues with these loans is that they sometimes have shorter terms than other loans. This makes it difficult to afford your monthly payment. In some cases, you might also have to make a very large down payment to qualify.
Gap Insurance
When you are financing a new car, the dealer might try to get you to buy gap insurance. While this might seem unnecessary, with gap insurance, you guarantee that you will not end up owing more than what the vehicle is worth if you get in a wreck. New cars depreciate rapidly, and if you are in a wreck, your auto insurance company will only pay what the vehicle is worth, regardless of how much you owe. Gap insurance pays the difference between what the auto insurance company pays and what you owe.
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