You want to have financial strategies in place before you start your quest to purchase any vehicle. This will keep you from getting yourself in too deep or just plain getting ripped off and having buyers remorse. Simply follow these steps to ensure you are prepared before you shop! Let’s go…..
Know Your Numbers
It’s important that you know where you stand so you can make informed decisions about your financing options. You want to know about yourself and not have to ask or find out from someone else.
Credit Score - This score is a mathematical prediction of your ability to pay your debts and will be a factor on determining your finance rate. It will effect the term of your loan and how long you can extend the time to pay off the vehicle.
A so-so score does not necessarily mean you can’t get financed.
Debt - To - Income Ratio
This is a measure of your ability to pay a lender back by your debt vs. income. So say you have high debt and low income, that will mean less attractive terms.
Perhaps you have have high income and low debt that will mean more competitive terms.
How to determine your DTI
Add up all your monthly recurring debt payments like your mortgage, utilities, credit card bills etc.. Now divide them by your gross monthly income.
* You can search Debt to Income Ratio Calculator and find one that you like then input your numbers and it will compute your debt ratio for you.
The industry standard (as of the time of this post) is usually 43%
Now that you have a better picture where you are financially you can see how much you can afford to set aside for a monthly payment + expenses, like maintenance, insurance and gas.
The Monthly Payment
The length on the loan will affect the monthly payment. A shorter loan length will give you a better rate buy a higher monthly payment. A longer loan length will cause more payments at a higher rate.
A key part of a good financing deal is the down payment. Determining the right amount of cash to put down can help you get a deal that will work for your budget and payment options.
Putting down a decent chunk will get you in a sweet spot that could get you a shorter term and lower the interest rate or payment.
* Using a loan calculator will let you play with the numbers. Find out what works for you budget!
Some lenders may require more money down on a new car vs. used. Now you don’t necessarily need all the money in cash, consider a trade in.
You can trade in your current vehicle to lessen the amount you need to put down, provided you have equity in it. Do some research ahead of time so yo know your current vehicle’s value. This way you know how much is going to go towards the down payment of your new/used vehicle.
Now if you already have an auto loan that you jumped into without doing the prep work and feel it wasn’t the best deal you can refinance your loan to receive a lower interest rate, reduce your monthly payments and ease your budget, provided you qualify.
*This is also a good option for people who have improved their credit or have increased income coming in.
If you realize that your financing wasn’t stellar or want to shop around you will need:
*Your current finance paperwork
GET PRE-APPROVED BEFORE YOU SHOP
You never have to get financing through a dealership and I strongly suggest that you visit your local credit unions and banks to shop for the best rate before ever stepping foot on a car lot.
This is crucial to getting the best deal and makes you feel good about it because you will know you got your best rate, term and vehicle within your budget. This makes the process less stressful and confusing and no wondering what the heck your monthly payment is going to be.You don’t have to feel like you’re getting ripped off and it just makes the entire experience more exciting and fulfilling.
*The advantages to this is, it gives you negotiating power, gets you the best rate, and builds confidence!
By being prepared, you open up the chance to ask a competitor for a lower rate or better terms. This will prove to yourself that you got the best possible deal.
Knowing all the numbers makes you a confident shopper and gets yo the best deals with no buyer’s remorse. The best part of getting a new or used vehicle is feeling good about it. You want to enjoy your new car and know it’s within your budget and works for your lifestyle. The last thing you want is to get yourself into a deal that straps you financially and makes you feel terrible.
Follow these strategies for no stress financing and it will help take some anxiety out of the process:)