1. Your credit score on your credit report
Auto loan lenders use your credit score as one of the most important factors in determining what your auto loans rate will be for new car financing. This makes it critical that you know what is contained in your credit report since your credit report may have outdated or simply wrong information that makes you appear to be a greater credit risk. This increases the interest rate you will pay for new auto financing a lease or any other loan you might apply for. Checking your credit report is easy to do online and FREE.
2. The length in time your auto loan is for
The more months in the term of your loan, the higher the interest rate you'll pay. Be very careful when deciding on how long you keep paying for your new car. A lower monthly payment on 60 month auto loans may look more attractive than higher monthly payment on 48 month auto loans but you'll end up paying more in interest over the life of the loan with a longer amortization schedule. How much more? Here's an example;
| ||48 Mth. Loan ||60 Mth. Loan |
|Loan amount ||$21,000 ||$21,000 |
|Interest rate ||4.0% ||5.0% |
|Monthly payment ||$474 ||$396 |
|Total interest ||$1,759 ||$2,777 |
|Total loan cost ||$22,759 ||$23,777 |
|Additional interest ||$0 ||$1,018 |
In this example your new car would have cost you $1,018 more in interest expenses if you chose the 60 month auto loan vs. the 48 month auto loan. More time equals more new car financing costs for your debt.
3. The TOTAL price you pay for your vehicle AND optional dealer products and servicesYes, this may seem obvious but the additional ways dealers can add costs to your car purchase may not be. If your goal is to minimize the size of your new car financing, the total cost of the car and add-on costs must be scrutinized carefully. Here's where the size of new auto loans can be minimized;
• The purchase price of the new car - Don't enter a car dealership without knowing the dealers invoice price, the cars MSRP (Manufacturers Suggested Retail Price), and whether incentives or rebates are available for your car. This information is critical in determining whether the dealer is making an extraordinary profit on the car you are buying and whether you can negotiate a better deal to lower your new car financing. Knowing what the dealer paid for a car (dealer invoice) and what the dealer is selling the car for (MSRP) gives you an idea of the magnitude of profit the dealer is earning. The other half of the negotiating equation is knowing what type of rebates, factory to dealer incentives and factory to consumer incentives may be offered on your car. To arm yourself with this information or to purchase a new car online without even entering a dealer, visit Autoweb, Car.com, Autobytel, or CarsDirect.
• Dealer added options - Many options that are added to new cars by dealers may be unnecessary to pay for and increase the cost of auto loans. These options include "dealer prep fees", window etching, paint sealants, interior scotchguarding, dealer advertising association, holdbacks, sales promotion fund, etc. Be informed before entering a dealer as to what options you are not willing to pay for in your car loan and should be removed from the selling price.
• Extended service contracts - Buying one of these from a dealer and including the cost in your monthly auto loan payment can increase your loan value significantly if you overpay for the contract. Extended warranties on mechanical and electrical components are usually less expensive through online providers such as 1SourceAutoWarranty.
• Guaranteed Auto Protection (GAP insurance) - Dealers may offer to include GAP insurance in your auto loans monthly payment. This insurance pays the difference between what you owe on your auto loan and what an insurance company would pay if your car is stolen or totaled in an accident. Dealers generally charge 30-50% more than online insurance agents.