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Buying a car is a major financial decision. In fact, outside of your home, your car may be your most valuable possession. Before you head to the dealership to start shopping for a car, make sure you do your homework. With a little bit of guidance, you can find a great car at a great price and get a loan that fits your needs. Before you shop for a car, take some time to read this guide to learn what you need to know about cars and car loans.
Table of Contents:
- Best Time to Buy a Car and Get a Car Loan
- What Is MSRP and How It Impacts the Sales Price
- Finding the Best Car and Car Loan for You
- Selecting the Best Used Car and Car Loan for You
- What You're Missing in Your Search for the Best Car Loan Rates
- What You Should Know When Using an Auto Loan Calculator
- Looking to Refinance Your Car Loan? Here's What You Need to Know
Best Time to Buy a Car and Get a Car Loan
When you need a car, you may not have the luxury of waiting until the "best time" to start your purchase, but if you have some flexibility, you can try to time the purchase around the calendar. Dealer incentives and a motivated salesperson can help you get a great deal on a car purchase—if you shop at the right time.
Choose the Right Month
First, consider the month you shop. Typically, October, November, and December are the best time to buy a car. There are two reasons for this. First, dealerships are nearing the end of their quota calendars at this time, and they are motivated to reach their annual sales goals. Second, dealerships are anticipating a flood of new vehicles for the coming calendar year. The current year's model will be discounted to account for this because they need to move them off the lot.
Choose the Right Time of the Month
Dealerships have quotas not only for the year, but also for the month. If they are not close to meeting their goals, they may offer better pricing or incentives if you shop toward the end of the month.
That said, the very last day of the month may not be the best time, but rather a few days before the month's end. Each dealership has its own time frame for quotas, and they may not sync perfectly with the calendar month.
Choose the Right Day of the Week
Finally, the day of the week you shop has an impact on the price of your vehicle. Weekends are prime shopping time for car dealers, so you may not get the best price on a vehicle if you shop on the weekend. Instead, consider shopping early in the week, when the sales people are starting to look for new sales to increase their income for the coming week.
Holidays can also bring discounts on new vehicle purchases. Three specific holidays tend to bring big discounts on vehicles, including:
- Memorial Day: If you're shopping for a car in the summer, shop during Memorial Day sales for the best price.
- Black Friday: Skip the lines at the retail stores on the busiest shopping day of the year and shop for a car instead.
- New Year's Eve: New Year's Eve brings many dealerships to the end of their calendar years, so you have a holiday sale combined with quotas to help you get a good price.
Timing Your Car Loan
Timing has less of an impact on your car loan than it does on your vehicle purchase. However, if you are working with a lender that receives commissions on car loans, shopping toward the end of the month can help you get a slightly better rate or faster approval.
For more tips and other factors to consider while searching for your new vehicle, review our blog on the best time to buy a car.
What Is MSRP and How It Impacts the Sales Price
Once you've chosen the right time to buy your car, the next step is to learn about the prices you will see when you walk into the dealerships. If you understand the pricing on the sticker of the car you're looking at, your negotiation skills will be stronger.
What Is the MSRP?
The MSRP is the "sticker price" on the vehicle because it's literally the price listed on the window sticker on the vehicle as it sits in the dealership. MSRP stands for "manufacturer's suggested retail price," and that's exactly what it is. This price is what the manufacturer suggests the dealership sell the vehicle for. This does not mean it is the selling price. It also does not mean it's the price the dealership paid for the vehicle.
What's Not Included in the MSRP?
The MSRP is simply a suggestion. It gives the dealership and buyer a starting point for negotiations. It does not include several things that impact the total cost of purchasing the vehicle, including:
- Destination charge: If the dealership had the vehicle shipped to the lot, it must pay the cost of that shipment.
- Dealer-installed options: If the dealership adds an anti-theft device or other option to the vehicle after arrival, that increases the price.
- Taxes, fees, and registration: These fees, mandated by the state, are non-negotiable but will add to the cost of your vehicle.
- Dealership fees: Some dealerships charge additional fees, such as document prep fees, dealer prep fees, and advertising fees, which may be negotiable.
How MSRP Helps Buyers
The MSRP is a good tool to compare vehicles and to apply for your car loan. It gives you a ballpark for what the vehicle will cost and allows you to compare the cost of similar vehicles. While it may not be your out-the-door price, it is a good benchmark to use as you shop.
The MSRP also gives you a starting point for negotiation. If the dealer is highly motivated to sell, they may negotiate below this benchmark. However, you may actually pay more than this price. If you're shopping for a vehicle that's in high demand, the dealership can put an asking price on it that's higher than the MSRP. Remember, MSRP is nothing more than a suggestion.
For more information on how the recommended selling price impacts your car loan application, review our blog on the MSRP meaning and how you can prepare for negotiations at the dealership.
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Finding the Best Car and Car Loan for You
Now that you understand pricing and timing for purchasing a vehicle, it's time to start shopping. How can you find the best cars and the best car loan rates to make that vehicle affordable? By carefully considering your needs and then shopping based on those needs, you will quickly find the best car loan and vehicle for your needs. Here is a step-by-step guide to finding the right car.
Step 1 – Consider Your Needs
The first step is identifying your needs. What, exactly, do you need in your new vehicle? Does it need to carry a certain number of passengers? Do you need to be able to haul a trailer? Is technology, like a backup camera or in-vehicle movie players, important to you? Make a list of the things you know you need in your vehicle, then make a list of the things you might want.
Step 2 – Set a Budget
A budget is helpful before you begin shopping. Typically speaking, your car payment should not be more than 15% of the money you bring home every month. You can find cars that are more or less than this amount but keeping your budget in mind will help you shop smart. If you're not sure what the monthly payment would be for a specific price range, use an auto loan calculator to help.
Step 3 – Research Costs of Ownership
As you consider the vehicle that's right for your needs, you must consider all of the costs of ownership. Some things that can vary from one vehicle to the next include:
- Gas mileage
- Cost of insurance
- Cost for major repairs
- Vehicle depreciation
If you're trying to decide between a few similar vehicles, weighing these costs of ownership can help make your final decision.
Step 4 – Take Some Test Drives
Before deciding on the best car for your needs, take some test drives. Sitting behind the driver's seat of a vehicle and feeling the vehicle's responses to your driving habits will help you find one that not only fits your checklist, but also feels great to drive.
Schedule some test drives before you start shopping in earnest. If you can, take the vehicle through some of your typical driving experiences, such as freeway driving or rural driving, depending on your commute. Look over the location of the various controls, listen to the sound of the engine, and even take time to listen to the stereo and sound system. Sometimes a test drive will help you rule out a vehicle you thought you'd love, and this will make your search for a new car easier.
Step 5 – Find a Car Loan
A car loan is an important part of the shopping process. You have three basic choices for your car loan. These are:
- Get a loan through a credit union or bank
- Get a car loan through the dealership
- Get a car loan through another lender, such as an online car loan company
If you choose to get a loan through the dealership, you will want to remember that car loans are a major part of their income. They are going to try to commit you to a monthly payment versus focusing on the rate or the total cost for the car.
Instead, consider working with a credit union or bank. Get pre-approved for a car loan early in the process, then shop knowing what you can afford.
Zero-percent financing or large cash rebates can make your new car purchase more affordable, but keep in mind that these types of incentives often come at a cost somewhere else in the process, such as a higher sales price or less value for your trade-in, so do your research before signing the loan documents.
A search for the best cars available and conducting due diligence does not have to be a stressful or uncertain process. For more tips on how to save time and money, be sure to review our blog on finding the best cars for you.
Selecting the Best Used Car and Car Loan for You
If you're shopping for a used vehicle instead of a new one, you may have additional considerations. While you will still want to follow the previously mentioned steps, including the test drives, vehicle research, and needs estimations, you will need to dig a little more deeply to make sure you find the best used car for you. Here's how you can protect yourself.
Know Where to Look
If you're shopping for a used vehicle, the dealership isn’t your only option. You can also look in classified ads or shop online to find private sellers. If you buy from a private seller, make sure you carefully research your options and the seller to avoid scams. There are several steps you can take to ensure that the vehicle itself is worthwhile as well.
Check the Vehicle History Report
A Vehicle History Report is invaluable in your search for a used car. The best used cars will have few owners and no accidents on their history. If you notice serious flaws on the Vehicle History Report, the price should reflect that. CarFax and AutoCheck are both popular websites that let you see the car's full history based on its VIN.
Have Your Mechanic Check it Out
If you get serious about a used car from a private seller, ask if you can have your mechanic check it out before you purchase. A reputable seller will be willing to let you do this, provided the mechanic can come with you to the appointment. If the seller isn't willing to let you have your mechanic check the vehicle, chances are they may be hiding something.
Get a Used Vehicle Car Loan
Like new vehicles, used vehicles offer similar car loan options. One difference will be that you have fewer incentives at the dealership, because the special financing offers are rarely available for used vehicle purchases. Due to this large difference, the best used car loans are typically through a credit union or bank, rather than at the dealership.
Still uncertain how to select the right car and loan for you? Be sure to review our blog on selecting the best used cars and car loan for you.
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What You're Missing in Your Search for the Best Car Loan Rates
Now that you know what to do to find the best used cars and new cars, the next step is to figure out the right car loan. The most important factor to consider about your car loan is the rate. Car loan rates are the interest rates charged for borrowing money to buy a car. Understanding how they are calculated and where you will get the best rates is critical when shopping for a car. Car loan rates are based on the vehicle, your credit score, current interest rates, and the lender's requirements.
Credit Score and Your Car Loan
Your credit score directly impacts the rate, so the better your credit, the better your rate. Checking your credit rating and taking steps to improve it before applying for your car loan, can help you get a better rate.
Choose the Right Vehicle
The vehicle you choose also impacts the loan rate. Typically, car loans for new vehicles tend to be lower than car loans for used vehicles. This may not make sense since new vehicles cost more. However, lenders look at the vehicle's value, and used vehicles tend to be worth less than new vehicles, so they have slightly higher interest rates. This protects the lender if you fail to make your monthly payments on time.
Watch Interest Rates
Car loan rates are based on federal interest rates. When those increase, so do the rates for car loans. When those drop, so do the rates for car loans. Consider applying for pre-approval from your credit union or bank when you see low rates or rates that are steadily decreasing, because chances are they will increase again in the future.
Finally, shop carefully for your loan. You can approach multiple lenders to get the best rate on your car loan.
A car loan is a long-term financial commitment. Before you sign on the dotted line, be sure you are getting the best deal by reviewing our blog on getting the best car loan rates available.
What You Should Know When Using an Auto Loan Calculator
An auto loan calculator is a great tool to use when shopping for a new or used car loan. It will help you calculate not only the amount of your monthly payment, but also what variations to your loan terms will do to that monthly payment. Here's how you can use one as you make your vehicle purchase.
What It Includes
An auto loan calculator allows you to input various aspects of your loan. These include:
- Term in months
- Interest rate
- Vehicle price
- Sales tax
- Down payment
Once you input these values, you will see each month's payment. You may also see how much in interest you'll pay over the life of the loan.
Calculate Your Monthly Payment
The primary function of an auto loan calculator is to calculate your monthly payment. If you know the interest rate on your loan and your estimated car purchase price, you can plug that information into the calculator to see the amount of your monthly payment. Change the loan's term to see how that changes your monthly payment amount.
Determine the Change Different Interest Rates Make
If you are shopping for different loans, an auto loan calculator lets you see the difference they will make on your monthly payment and the overall cost of the loan. Even a change of just one percent can make a big difference. Using an auto loan calculator will allow you to compare rates quickly, and may motivate you to shop for a better loan.
Calculate the Difference a Trade-in or Down Payment Makes
Maybe you're considering selling your existing car first, or using it as a trade-in. Perhaps you're considering how much money to put down on the car you purchase. Again, an auto loan calculator will help you decide how to handle these factors. By plugging in the values, you can see which choice makes the most financial sense for you.
For more information on how calculating your payment ahead of time can save you money in the long run, review our blog on auto loan calculator tips.
Looking to Refinance Your Car Loan? Here's What You Need to Know
Many car owners don't know that they can refinance their car loans. Doing so may let get you a better interest rate, shorter term, or lower monthly payment. If your current car loan is too expensive for your needs, or you want to pay it off more quickly, refinancing may be the right option. Before you refinance, make sure you do your homework.
Research Pre-Payment Penalties
Before you refinance, check the terms on your existing loan. Many lenders charge a fee if you pay the loan off early. If you have a pre-payment penalty, understand how this affects your refinance.
Does Refinancing Make Sense?
Before you refinance your car loan, make sure it makes sense financially. Some reasons that it makes sense to refinance include:
- Interest rates have lowered since the original loan. If the interest rate on a $25,000 loan drops from 7 to 5 percent, you can save about $10 a month and over $2,000 over the life of the loan.
- Your credit rating has improved since the original loan. This can earn you a lower interest rate.
- Your financial situation has improved. This may allow you to refinance for a shorter term, which, then, helps you pay off the car more quickly.
- You didn't research your options the first time. There may be a better loan out there if you take the time to research.
- Your loan is too expensive. Sometimes it makes sense to refinance if your current loan doesn't fit your monthly budget. A longer term can lessen the monthly payment amount.
When Does Refinancing Not Make Sense?
There are times when refinancing does not make financial sense. Here are some circumstances when you should just stick with your current car loan:
- You're hoping to apply for a loan soon. If you know you're going to be applying for a mortgage or large personal loan in the near future, don't refinance your car loan. It will impact your credit rating and could hurt your ability to seek your loan.
- The fees outweigh the benefits. You will pay fees to refinance your car loan. Make sure you stand to gain more than you will be paying to refinance.
- Your car isn't in good condition. A lender will only lend for a car that has value. If the car has significant damage or mileage on it, or it has little value for some other reason, your lender may not be willing to loan you the money you need.
- You're almost done repaying your loan. If you are close to the end of your loan, just stick with the existing loan terms. Refinancing will not pay off.
How to Find a New Loan
If you think refinancing your car loan makes sense, then take the time to research your loan options. Talk to several lenders, to find out what your options are. You will find variations from one lender to the next, so it makes financial sense to do your homework.
Buying a new or used car takes time and research. Once you put in that time and find the right car loan and the right car, you can move forward with confidence, knowing your newly purchased car and loan will both be a good fit for you.
For more information on the best time to refinance, review our blog on everything you need to know about refinancing a car loan.