Before you sign any papers for an auto loan, here are three tips to
keep in mind:
Compare Interest Rates. Many car
dealerships offer their own auto loans to customers, but they may not offer
the best rate. Research other lenders to see what types of rates are
offered. If you have an account with a bank or credit union, see if they
can offer you better loan rates because they are likely to offer good rates to
their own customers.
Make sure you have final approval for the loan in
writing. Many auto loan lenders, especially those from the car
dealerships, promise customers a great auto loan at low interest, but the
offer usually only applies to people with high credit scores. Before
buying a car, make sure you have the auto loan approved and in writing.
"Pre-approved" means there is still a chance you might not get the loan at the
rate discussed.
Avoid loan stacking. Many people
trade in their old car for a new one, but they still have a current car loan
that hasn't been paid off entirely. If the old car's trade-in or resale
value isn't enough to pay off the loan, a car dealer may offer you a "stacking
loan" that pays off your old loan and finances your new car. This loan
may seem helpful, but you are essentially taking out a larger loan for your
new car. In the end, you are actually paying more than your new car is
worth.
For example:
New Car Price: Old Car Loan Remaining Balance: Old Car Trade
In-Value:
$12,000 $4,000 $1,500
You need a loan
for $12,000 (new car) and $2,500 (what you still owe from old car loan), so
you take out a loan that's $14,500 when your new car is only worth $12,000.
