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 Avoiding car financing negotiating mistakes
  Are auto loan interest rates low enough today?
By the EchoBay Loans Expert
 Avoiding car financing negotiating mistakes
Dear EchoBay Expert: I'll be purchasing a new car this month at a dealer and I don't want to make any amateur mistakes in negotiating the car financing. What's the worst mistakes I need to avoid when getting this car loan?

Dear Loyal Reader: There are several mistakes you need to avoid when you are negotiating car financing. The biggest mistake most people make is negotiating based on the monthly payment rather than the price of the car.

If you answer with a number when the dealer asks what you would like your monthly payment to be, you might as well just hand him your wallet and all your bank account information. The dealer can make the payment on the car whatever you need it to be. He can do this by extending the term, raising the price of the car, increasing your interest rate or a combination of all three. Always negotiate the price of the car, you can calculate your car payment after the final price of the car is agreed upon.

Another common mistake is not reading the loan documents before you sign them. Not all loan contracts are the same and you should always read the fine print before you sign on the dotted line. If you do not, you could end up paying for junk fees that the dealer has added in such as promotion funds, document preparation fees, paint sealant, etc.

Do not ever agree to purchase the car before you have been approved for the loan. If it is going to take a few days for approval, then you need to drive your old car off the lot. If you take the new car home, the dealer is in a much stronger negotiating position on car financing now. This can make you feel obligated to buy the car when he calls to tell you that you've been approved at a higher rate.

Fourth, be sure to negotiate the price of the new car and the trade in value of your old car separately. If you discuss this as one number, it is too easy for the dealer to hide the price of the new car and therefore charge you more and to hide the price of your trade and not give you a fair value. Always discuss this separately.

Finally, be informed about your credit score and history. Your credit score can make a dramatic difference in your interest rate. By knowing your credit score ahead of time, you can prevent the dealer from charging you a higher rate because he has discounted your score.

 Are auto loan interest rates low enough today?
Dear EchoBay Expert: Interest rates on car loans have been moving up in the past few months. I don't have a large down payment today, but on the other hand I don't want to wait a few months to buy a car and then get locked into a higher interest rate I'll be stuck with for years. Should I apply for auto financing today or wait until I have a larger down payment?

Dear Loyal Reader: Deciding when it's best to check into auto financing based on rates can be tricky. Of course, every one wants a low auto loan interest rate but a larger down payment may be more beneficial to you in the long run.

First, look at what the likely difference is in rates between now and when you would like to finance your auto. If we're talking about half a point, you would probably be better off to wait. However, if it looks like the difference will be several points or more, it can make sense to lock in the lower interest rate now. Let's look at an example to see the difference.

Assume you are looking at a $20,000 vehicle. Right now, you have a $1,000 down payment but if you wait you could have a $3,500 down payment. The following assume you will finance for 60 months: 6% with a $1,000 down payment = $367/month, $3,039 in interest 6.5% with a $3,500 down payment = $318/month, $2,639 in interest 8.5% with a $3,500 down payment = $338/month, $3,811 in interest.

As you can see, your payment will be lower with the down payment even with a 2.5% increase in interest rates. However, you will pay nearly $800 more in interest with the 8.5% auto financing option.

The answer to your question truly comes down to what you think interest rates will do. Do some simple calculations as I have above and decide what is best for you.

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