Ok, so you’re going to show up at the dealer with your own loan, but where should that loan come from?
Start by getting a sense of the prevailing rate for a new-car loan. The number you’re going to want to focus on is the APR, or annual percentage rate. With this number, you can cross-compare loans from one lender to another, so long as the durations of the loans are the same.
You’ll probably get the best deal at a credit union—which is essentially a members-only, non-profit bank. Because it is a non-profit it has cheaper loans than your typical bank. But you should also check out rates at traditional banks and at online-only car lenders such as Capital One and E-Loans.
Pretty much anyone is fair game: The rate and the duration are really the only two things that matter.
Don’t be distracted by dealership offering rebates or zero-percent financing. “Zero-percent financing” means you are not charged any interest on the loan. So if you were buying a car that cost $24,000 and you had a 48-month car loan, your monthly payment would be $500. A rebate is money taken off the price of the car. Rebates are also called “cash-back” deals.
Here’s the thing about those offers: you’re probably getting screwed one way or another. If you qualify for 0% interest (and most people don’t, as it’s given only to people with insanely good credit scores), your dealer won’t budge on the price. If you take the rebate, you won’t get a rock-bottom or 0% interest deal. If you want to run the numbers between zero-down and rebate, check out our handy calculator here.
That’s why splitting up financing and purchasing is such a good idea: First, you can shop around for the best credit-union car loan (which has the added benefit of being a less shark-infested environment) and then you go to dealer and focus on negotiating the purchase price of the car. It’s when these two transactions are bundled together that you get into trouble, so keep ‘em separated.
If you do choose to go with a dealer, be extra vigilant about what you discussed, and what you’re signing—it’s not uncommon for dealers to add in various fees (rustproofing, extended warranty) that are unnecessary and only there to rip you off. Question everything that wasn’t covered in your negotiation, and don’t be afraid to head for the door if you feel you’re getting played.
There are some easy ways to catch a break with your dealer when negotiating the price of your car. Timing can be everything:
1.) Shop early in the week - Weekends are primetime for dealers, so if you show up on a Monday, they may be more motivated to cut you a deal, since business is sorta slow for the next few days.
2.) Shop at the end of the month – Car dealers get monthly bonuses if they move enough metal. If you show up on the 30th and your guy’s two cars short of his bonus, he may cut you a better deal so he can make his numbers.
3.) Shop for a car that’s about to be replaced/discontinued – Pretty simple logic here: Things that are about to be considered “old” go for less. If you’re looking at a 2008 Honda Accord and the 2009s are about to be trucked in to the dealer, you usually can get a deal. If the 2009 model is completely new and different from the 2008, you’ll save even more. (Who wants to be seen driving the old-looking model? Oh, right—smart, frugal people.) And if Honda decided the Accord wasn’t selling much anymore and were killing it after ’08 (fat chance)? Untold riches await you.
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