Tips on How to Finance a Car

Financing a car is so common in our culture today that many car buyers rarely think about it. But buyers should be cautious when working with car dealers for their own benefit. After all, they are the ones who have to pay for it. There are some tips to help make financing easier, however, and less of a headache in the long run.

• Obtain a copy of your credit report before you go car shopping. Be aware of any issues on your credit report that may cause a lender to want to declare you a higher-than-normal credit risk, including such things as: late payments to creditors or charge offs. Better than average credit scores mean you will have more leverage in negotiating the terms of your loan.
• Look for a vehicle that suits your needs and is within your ability to pay off in a reasonable amount of time. Most car loans are for five years but it is often better to pay it off as soon as possible since cars depreciate in value quickly.
• Buy a car that is under your credit limit (a figure based on your income and existing debt incurred). Car dealers will often finance car buyers' right up to their credit limits and sometimes for more if they are perceived as risks. Buying under your limit gives you a better chance of making all of your payments on time and thereby improving your credit score.
• Consider an extended warranty. Once a vehicle goes beyond the basic manufacturer's warranty, buyers are responsible for all repairs including the major ones such as transmission repair. Some repairs can be very expensive and without a warranty buyers have to pay out of pocket for them. The extended warranty, which can often be wrapped into the loan, can come in handy if a buyer needs major repairs on a car that is not yet paid off.
• Scrutinize the loan documents and watch out for extra charges. Make sure the documents include the interest rate that was negotiated. Car buyers should not be afraid to ask many questions. In addition, buyers shouldn't be afraid to take more time to think about the deal if necessary.