Understanding car financing can seem arcane, but it doesn’t have to be. All it takes is a few minutes’ worth of your time to learn the process, and the pros and cons to different auto financing approaches. When you’re trying to figure out how much car you can afford, of course, you’re not just looking at the MSRP. You also need to take into account insurance, titles, taxes, fees, and your monthly payments. The easiest way to take control of your car payment is with your down payment. Here’s what you should know before you visit High Q Auto.
Most of us don’t have enough in the bank to pay for a new car, truck, or SUV with an assist from a lender, like our bank or our auto dealer’s finance department. Let’s start with auto loans.
If you’re buying a used Jeep Wrangler with a sticker price of $20,000, it’s suggested to put down at least ten percent of the sale price (in this case, that would be $2,000). But it’s worth bearing in mind that your principle (the remaining $18,000) isn’t the only cost for which you’re on the hook; you’re paying interest on that principle. The interest is determined by a number of factors, including your credit rating and the loan term (its duration). A higher down payment — 20% down — doesn’t just lower your principal to $16,000; it also lowers your long-term costs because there’s less principle on which to charge interest.
Leasing is popular for many car buyers because it locks you into a low monthly payment without necessarily having to put a large amount of money down. If you don’t have a large down payment, good news: the initial payment is already locked in from the start. If you have enough for a large down payment, even better news: it’s not going to have any bearing on your monthly payments, so you’d might as well bank that money in the event you decide to buy your car out at lease end.
Let’s say that leasing isn’t in the cards because you know you’ll be hit with mileage penalties or wear-and-tear penalties, or because you’d rather just own your vehicle outright. What do you do if your bank balance won’t allow for a 20% down payment? First, look for incentives and deals at your dealership; good timing or a bit of negotiation can help you control costs. Second, unless this is your very first car, odds are good that you have a vehicle that you can trade in. When that trade-in value is applied to your purchase, it can do some of the heavy lifting when it comes to lowering your monthly payment without as much money coming out of your pocket.
Two things are always advisable if you’re leasing or financing a car purchase. First, know your credit, since the kinds of incentives for which you’ll qualify, and the kind of interest you’ll pay, starts there. Second, if your car dealership has an auto loan calculator, take full advantage. It gives you a clearer view of the big picture, and a better idea of how much car you can afford to finance. And of course, if you live in the Broward County area, you can — and should — just visit High Q Auto for answers to your financing questions, plus auto sales and service done right.