A personal look at auto loans, and being prepared to shop to find the best loan rate and terms.
I am one of those people who drives to one supermarket to get the best deal on produce, another to take advantage of their discount meats and a third to buy one gallon of milk and get the next gallon free, and that's on top of all the coupons I use. My husband Wes loves to remind me how much this is all costing in extra gasoline, which is part of the reason I first noticed hybrid cars. In fact, the day the first model came out at our local dealership, I wanted to go right down there and take a look, but Wes was a little smarter about that decision.
"Wait a couple of years until the used models come on the market," he said. "Otherwise, you're just throwing away thousands of dollars as soon as you drive it off the lot." I knew Wes was right about the depreciation on new cars. I'd heard it could be as much as 40% in the first few years. I'd bought my car from my parents and had never had to think about financing or depreciation.
About 18 months later, when I saw a few of the hybrid cars advertised in the used-car dealership section of the paper, I brought the idea back up to Wes. The prices appeared to be right and the incentives like cash rebates were tempting. Again Wes was savvy about getting the best deal. He reminded me that I'd never been to a car dealership before, and explained that getting the best deal wasn't as easy as just driving to where the car was advertised. I would need to consider all the steps of obtaining an auto loan before even visiting the dealership.
Wes guided me to shopping the loan online and at a few local banks and credit unions. He explained that it was important to shop around and settle on auto financing within 30 days, because once my credit was pulled by any of the lenders, all pulls made by other auto loan lenders within that 30 days would count on my credit report as a single inquiry. If I let my decision-making take longer than that, however, the inquiries would start to add up and could pull down my credit score.
Wes also helped me compare the savings of lower interest rates versus the cash-back deals offered by some of the dealerships. He showed me how I could take the cash-back amount and apply it to my down payment. Because the dealer was offering a choice between the cash rebate and zero percent financing, Wes calculated the savings both ways and showed me how, even if I qualified for the zero percent financing, I would still save more in the long run by taking the cash-back option and financing with the lowest interest rate I'd secured through a local credit union.
By the time we actually visited the dealership, I knew enough to negotiate the price of the car first before mentioning the cash rebate or that I was planning to use financing from a source outside the dealership. Only after we had settled on a price did I talk about taking the cash-back option and using it toward my down payment. Then I let the salesman know that I was pre-approved through the local credit union and would not be financing my auto loan through the dealership.
I think Wes was impressed by how much I had learned. He had come with me to lend support if necessary, but as we left he commented that he might want to take me with him the next time he shopped for a car. I thought if only he came with me to two or three supermarkets around town each week, he wouldn't have been surprised at how well I can bargain when I want the lowest price. And now that I own a hybrid car that gets almost 50 miles to the gallon, I never think about driving across town to get the best deal. After all, I'm driving around in one of the best deals I ever made.