Before you start shopping for a car, look at your budget. Consider what length of loan makes sense in your situation and what you can afford for a down payment and a monthly payment. When you’re considering financing offers, be sure to compare the annual percentage rates (APRs) to make sure you’re getting the best deal. Before contacting a dealer, get preapproved for financing from a bank or credit union. This can help you determine whether the dealer’s financing is a good offer, and can also be useful in negotiating better terms with the dealer.
Get a copy of your credit report before you visit the dealership. Visit AnnualCreditReport.com or call 1-877-322-8228 to get a free copy. Your credit report has information on your credit history. That can affect whether you can get a loan — and how much you’ll have to pay in interest to borrow money. Your PFM can help you figure out what fits into your budget.
Get an “out-the-door” price of the car in writing before you visit the lot, and before you talk financing with the dealer. That means getting the dealer to send you the total price of the car before financing. Ask whether only government charges are excluded. Having this info in writing before you go to the lot will help you compare offers from different dealers, more easily catch extra charges and add-ons that may slip into your deal, and keep your attention on the total cost (not just the monthly payment).
Know your total cost, not just the monthly payment. Low monthly payment offers can be tempting, but don’t focus solely on your monthly payment. Lower monthly loan payments often mean longer loan terms and higher interest rates. Both of those will greatly increase your overall cost. When calculating what you can afford, use the Make a Budget worksheet as a guide to make sure you have enough income to cover your monthly expenses and a car payment.
Consider saving for a down payment first. A down payment reduces the amount you need to finance or lease. That will lower your total financing or leasing costs.
Ask if you’ll need a co-signer. If you don’t have a strong credit history, you may need a co-signer on the finance contract or lease agreement. Co-signers assume equal responsibility for the contract. If you can’t pay what you owe, your co-signer will be on the hook. Any late payments will hurt your credit — and your co-signer’s credit.
Compare loans based on the APR.
- The APR rolls up all financing costs into one percentage. It tells you how much you’ll pay for the money you borrow.
- Your credit history affects the APR: a better credit history means a lower APR.
- A really high APR can mean that you’ll owe more than the car is worth, if you decide to sell it before the loan is paid off.
Question any deal if the financing paperwork does not spell out:
- the APR
- the dollar amount of the total finance charge
- the amount of money you’re borrowing
- the total dollar amount of your finance charge plus the money you’re borrowing
- the amount of your payments, plus the number and due dates of your payments
Only sign a financing document that spells all this out — and never sign anything you don’t understand, or anything with blanks to be filled in later. Be sure you get, and keep, your copy of your signed contract, and all other purchase and financing documents you signed before you leave the dealership.
Having trouble making payments? See your PFM for guidance and options. Never pay any company up front if they promise to lower your payments or stop repossession of your car. That’s a scam.
Learn more about leasing a car.
