Financing 101

[John2009]

I've noticed many questions on financing on the site from people unfamiliar with the process. I'd offer these suggestions:

Before even going to the dealer go to your bank/credit union (shop around if you don't like their rate) and get a loan for the amount you expect to borrow plus 10-20% extra preapproved. Make sure you know the loan term and APR. The bank will usually hold the preapproved application for 60 days and unless you lose your job or make a large credit purchase, etc, will extend the time. Have the bank tell you what the monthly payment per $1,000 borrowed is based on your preapproval. With this information you can figure your payment amount at the dealer with the calculator on your phone as follows:

Total loan amount / $1,000 * monthly cost per $1,000 (provided by the bank) = Monthly Payment


Now go to the dealer and start looking at cars and talking price. Tell them you're preapproved for a loan, but don't tell them at what rate. When you pick out a car and get the price, they'll want to quote you financing, let them, but again, don't tell them what type of loan rate you got. Have them show you the amount financed and you can compare their payment to what the bank quoted you.

By the way, a dealer will often try to put credit life insurance payments, disabilty or some other BS into the loan payment, saying it will protect you and/or your loved ones if something happens to you. If you think you need this type of coverage, go somewhere else and get it other than the bank or dealer.

[schnellsy]

Good advice. Thank you.