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Auto Loans: 3 Dos and Don'ts

Richard Barrington
LoanBiz Columnist

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Car buyers owe it to themselves to get better at shopping for auto loans. After all, it is an experience that people are likely to repeat several times over the course of a lifetime. Added up, the value of all those car loans could equal or even exceed the value of a person's mortgage. That's why shopping around is important -- given the dollars involved, even small differences in auto loan interest rates can become significant over time. The following are three dos and don'ts of shopping for an auto loan.

3 Dos of Auto Loan Shopping

  • Do negotiate price before discussing financing. Some salespeople and dealers have an incentive tied to financing; for others (typically those without a financing relationship), cash is preferable. To avoid being put at a disadvantage in the negotiation process, it is best for buyers not to commit to a method of financing until after they've negotiated their best price.
  • Do use an auto loan calculator to analyze different loan terms. Auto loans are often packaged with special incentives, such as no interest for the first six months. Using an auto loan calculator can help a borrower determine which package will represent the best deal over the full life of the loan.
  • Do carefully budget before borrowing. This is another area where an auto loan calculator can help -- by understanding how much monthly payment a purchase will translate into, a buyer can test to see whether that payment fits into the monthly household budget.

3 Don't of Auto Loan Shopping

  • Don't step on the lot before doing some research. People get excited about cars, which can lead to impulsive decisions. Therefore it's a good idea to do some research in advance, both about the cars themselves and financing.
  • Don't settle for dealer financing without shopping around. It seems so convenient to let the dealer handle the financing, but shopping around for a better auto loan interest rate can be well worth the time.
  • Don't make decisions under duress. It is a salesperson's job to close the deal, and auto salespeople are better at this than most. However, buying a car and taking out an auto loan are major financial decisions that should not be made under pressure. When in doubt, a buyer's instinct should always be to back off so they can sleep on the decision, do some extra research, or talk it over with friends. This will help make sure the buyers get the car, the price, and the auto loan interest rate that is best for them.

About the Author
Richard Barrington is a freelance writer and novelist who previously spent over twenty years as an investment industry executive.

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