One of my new year's resolutions for 2012 is to revamp my car buying advice section which at the moment is, to use a technical term, quite a bit of a mess. So I'm starting today with an article about saving money on car financing.
One of the smartest things you can do when buying a car is to arrange for a loan outside of the dealership. This isn't just about avoiding dealership financing -- the trick is to think of the loan as a separate purchase. I tell people to think of it as shopping for money, because that's essentially what you're doing. How do you go about it? This first new article, How to Shop for a Car Loan, will tell you. -- Aaron Gold
Try to avoid a car loan where you can. Save money and pay cash. Much better deals and no worry for a missed payment. Time High schools will offer a major in “savings” instead of borrowing
Avoid a car loan? I have a 0.9% loan for 36 mos, could have paid cash, but it is effectively free money. If you are responsible with your money and have the money saved to pay off the loan or take a loan that is easily affordable, I don’t think you have to “avoid” a loan. Obviously, can’t run into trouble paying cash, but I don’t think taking a loan you can afford is a bad deal.
Some of the rules are different here in Canada, but above all, don’t get suckered in by the “0% financing” bit. I have heard a lot of ads giving you cash back, or 0%. Make sure you get both sides of the picture… what is the total amount you’ll have paid after the loan is done with 0% and with the cash back applied to the loan?
In fact, stay away from asking “how much per month” alltogether if you can. USe an online calculartor to figure out a rough idea. That way, you can leave financing out of the picture altogether and get a much more honest “cash deal” price. Then bring up the financing later and you’ll see what really happens… all of a sudden they’ll want to bring the price up!
Above all, don’t fall on the “we have to take 0% because we can’t afford the higher payment”. That is asking to be in a worse position later. If money is that tight, maybe you shouldn’t be looking at a new car.
Lastly, if you are the type who only pays cash, it still may be worth looking at financing. Why? If you finance at a low rate, you might actually earn more interest by investing that saved money in a guaranteed annuity and use the payments you receive to make the car payments.
Sound advice, Aaron. I’ve made my share of mistakes over the years walking away feeling like I made a good deal only to do the math later and discover I’d been had. My more recent purchases have gone much better, though, as I have resorted to taking my smartphone with me loaded up with an amortization app so when the dealer tells me the details I can punch them in and tell them to piss off with that first offer. Once they see I’m double checking their math the dreaded four square worksheet disappears real quick and they start being honest with me.
My advice, wherever you go whether it be the dealer or a loan shopping, take a calculator with you.