I’ll be the first to admit that we’ve known for a while that mom had to replace her 1999 Lexus. Instead of repairing her old car which I’m convinced was on a mission to bleed her dry, we decided to share my Nissan instead. We agreed that during this time she would save for a replacement. Buying a new car would be one of her top priorities. Well, that was two years ago! With more pressing things to save for (and spend on), she never got around to it. But with my upcoming move, she had no choice. Yes, y’all I’m moving out soon so she had to buy a new car fast.
When we started looking for a car, we had no idea what we were doing. Neither of us had ever purchased a car before. Despite this, we read car buying guides like the lowest auto loan rates for used cars which helped us quickly get up to speed.
After weighing both the pros and cons of buying a new car, mom decided to gift herself a new car for her birthday. I supported her decision but I had one question. How was she going to finance it? Paying cash was not an option.
My mom is now the happy owner of a stylish all-new 2018 Chevrolet Traverse!
But I’d be lying if I said that we didn’t learn a few important car buying lessons.
Weigh Financing Options
Although financing through a dealership is convenient, we would have missed out on a ton of savings if we settled for the first offer. For the most competitive rates, do your homework!
In addition to getting rates from dealerships, we also compared rates and financing terms from banks, online auto lenders, and credit unions. We even took it a step further and got pre-approved for a car loan. This helped mom narrow her budget and stick to a few car options.
Similarly to a dealership, a bank or credit union can lend you money to buy a car. However, since dealerships are generally more flexible with their terms, mom used her pre-approved loan from the bank as leverage.
After mentioning that she got better rates from the bank, the dealer lowered their rates. So much so that they beat the competition!
What’s the downside? The dealer added fees for being the middleman.
New apps like AutoGravity are also simplifying auto financing by allowing users to compare rates and secure auto loans at their fingertips before ever stepping foot in a dealership.
Ditch the Add-Ons
Although mom wanted the latest features like surround vision and adaptive cruise control, we quickly realized that these significantly increased the price of a car.
So to get the best deal, we started with the base price. We wanted to know how much cars cost without the added features. We then compared base prices at several dealerships and websites.
When picking add-ons, we only considered the ones that offered long-term value.
In the end, mom had to forgo lots of extras. She couldn’t justify adding over $100 to her monthly payment.
Buying A New Car: Incentives and Rebates
Dealerships sometimes offer special manufacturer’s promotions, introductory offers, and specials to incentivize financing through them. So don’t forget to ask for applicable incentives and rebates!
When mom noticed rebates online that were not available in store, she mentioned them. And after bringing a printout (as proof), the sales rep confirmed her eligibility. They honored her request which meant more savings!
Monthly Payments vs. Total Price
Mom wanted lower monthly payments which meant a longer loan term. When she figured out that she would be paying thousands of dollars more in interest, she quickly changed her tune. She ended up going for the shortest term loan that she could afford.
This was a great call!
Credit Score Impact
Lastly, interest rates on car loans depend on your credit score. No surprise here.
For the lowest APR (annual percentage rate) and the most bargaining power, your credit must be in good standing. Credit Karma is my go-to resource for checking my credit score but it’s actually just one of the ways that you can check your credit score for free.
If you have excellent credit, you’ll likely save big at a dealership. But if your credit is less than ideal, dealerships are notorious for jacking up the rates.
Also, keep in mind that some salesmen earn commission on high-interest rate loans. Beware!
If you enjoyed this post, share it on Twitter and Facebook!
Danielle is a travel finance strategist, author, speaker and podcaster. She paid off $63,000 of student loan debt in 4 years, bought a house at 27 and has traveled to 26 countries. She refuses to let her financial responsibilities hold her back from living life on her own terms.