When To Consider A New Car Loan

blog imageMany people think that the best time to take out a new car loan is when they have visited a dealership and decided on a particular vehicle to purchase.  This may not be the best time.  At that point, you have become so overwhelmed by your emotional reaction to the vehicle, that you are ready to sign on the dotted line and drive off.  So, if that is not the best time to consider a new car loan, when is?

The best time to consider a new car loan is before you have visited a dealership and well before you saw an advertisement for that new coupe or convertible.  You should consider buying a new car after you have determined whether or not you can afford a new car and just how much car you can reasonably afford.

If you do not have the cash to purchase a new car outright, chances are you will need to finance your purchase.  Generally it is best to have a loan well before you even start shopping for your new car.  Even before you consider financing options you should take a look at your monthly budget.  Your net income minus any expenses should give you an idea of what you can afford, but you cannot just stop there because the cost of ownership is more than just the monthly car note and the insurance.  You have to consider taxes, registration fees, maintenance and gas.   These all should be factors in your budget.  Although a newer car may not need as much maintenance as a used car, certain things like oil changes and tires are not factored into a new car warranty.

After you have gotten a ball park figure on just what you can afford, you should take into consideration your FICO score.  This will determine just what your interest rate and duration of the loan will be, which will in turn impact your monthly payment.  Many online finance companies have a free car loan calculator which will let you plug in some numbers to see just how these values will impact your payment.  You will simply need to enter the interest rate, the amount of the loan and the length of the loan into the required fields.  As a general rule of thumb, a lower interest rate or a longer loan period will reduce your monthly car payment.  Conversely, a higher interest rate or a shorter loan period will increase your monthly payment. In addition, it is always good to have as much of a cash down payment as possible to lower the cost of the car.  Trade in values can be tricky but generally, they too can lower the price of a new car.  After you have better insight into how much you can afford each month, then you can apply for a new car loan.

Shop around before you go with the first finance company you find.  Consumers are not just bound by traditional banks anymore.  There are several lending institutions many of which can be found online which can save time and money.