So I work in the automotive industry and I've recently been reading this subreddit more often, and it blows my mind how many stories I read about people who are underwater on their car loans. So I thought I'd put together a little post of car financing advice.
First, to make sure we're all on the same page, being underwater on a car loan is when you owe more on the loan than the car is worth. So if your car is worth $5k but you still have $8k left on the loan, then you are underwater. Now on to the advice.
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Put down the largest down payment you can afford. I'm not saying to empty your savings account or use all your emergency fund, but the more you put down upfront, the further ahead you are, and the less likely you are to get underwater. New cars can easily depreciate 10% as soon as you drive them off the lot, so if your down payment was less than 10%, you're already underwater. Ideally, I'd say you want to put at least 20% down.
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Keep the loan length as short as you can afford. While a longer loan will bring the monthly payment down, more of that payment is going towards interest and less towards the principle. In this situation, it is possible that your car depreciates faster than you are paying off the loan, thus causing you to go underwater on the loan. Personally, I would never finance for longer than 3 years, but I know this isn't realistic for everyone. In general, I would say never get a car loan longer than 5 years. If you're looking at a 7-8 year loan to afford a car, you should really be looking at a cheaper car.
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More than just the purchase price is negotiable. Your trade-in value (if you have a car to trade) and some fees are also negotiable. This is where you really need to do your research. There are multiple sites and tools online that you can use to determine your budget and your car's value. You need to determine the MAX you are will to pay for a car, and the MIN you are will to take for your car BEFORE you go to the dealership. Don't forget to factor insurance costs into your budget. As for fees, some are required and set ahead of time (like a destination fee). But other fees are set by the dealership and 100% negotiable, even if they say otherwise. For example, it is common for there to be a documentation fee and these often are ~$100. But if the dealer is trying to charge $500 for a doc fee, he is just trying to increase profit. Stuff like this is negotiable.
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You almost never want to take financing from the dealer. Let me be clear here, I am talking about DEALER financing, not MANUFACTURER financing. If you qualify for a good loan from Ford Credit, GM Financial, etc., those can be perfectly good loans. But the dealership itself may try to secure financing for you. All they are doing is going to banks and trying to find a loan you qualify for, and then they'll jack up the interest rate to increase their profit. For example, the dealership might secure a 5% rate loan for you, but they'll give it to you at 6% and that extra 1% is pure profit for them. You should just go to a local bank/credit union and get the financing yourself. It will be a better rate most of the time.
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Most extras/add-ons aren't worth the money. Things like window etching and underbody anti-rust coating do nothing and are just profit for the dealer. If you follow my above advice, you shouldn't get underwater on your loan, thus eliminating the need for gap insurance. Extended warranties can be tricky. Most regular, recent cars (less than 10 yrs old) that most people buy are very reliable, easily 150k miles and beyond. Unless the car you are buying is known for having issues, or is exotic and has expensive repair parts, or you know you get in a lot of accidents/break cars, most of the time it is cheaper to have your car fixed a local shop than to drop several thousand dollars on an extended warranty.
That's all I can think of for now. If I think of more I'll come back and edit it in. I'll answer any questions in the comments that I can.
Submitted February 14, 2017 at 06:27PM by tila2015 http://ift.tt/2leKGlX
