Finance Roll

Pay Cash for Your Car

Before buying your car, you should check online. See if the manufacturer of the brand you wish to purchase from is offering any special financing rates. In some cases, you may find that they are offering rates as low as zero percent. If this is not the case, anyone with enough money should pay for their car in cash. This eliminates expensive finance charges and fees as well as monthly payments. During shaky economic times, buying a car with cash helps hedge drivers against financial reversals. Drivers that own their cars outright don't have to fear repossession should they lose their ability to make payments.

Secure Financing in Advance

Prospective auto buyers should arrange financing before they shop. This way, customers can focus their shopping only on cars they know they can afford. Many times, banks, credit unions and other financial institutions may offer their customers better auto loan rates than the dealer-affiliated finance companies. Customers who have already secured financing can even challenge the dealer to offer better terms.

Make a Big Down Payment

Cars differ from houses in that depreciation quickly erodes the value of a car. This puts many buyers in the difficult position of owing more than the value of their car. Car owners who are "upside down" cannot sell their car for enough money to pay off their loan. A large down payment combats the effect of interest rates and depreciation so car buyers who so desire can get out of their loan. Some advisors suggest that car buyers should put at least 20 percent down on their car. Besides controlling the effects of depreciation, large down payments can also result in smaller monthly payments and short term loans.

Buy a Used Car

Used cars already have depreciated, so buyers don't face the same risk of going upside down with a car loan. Buyers will find that they save a lot of money even by choosing a car that is only one or two years old. Used car buyers can also save money on car taxes and insurance.

Use Cash for Upgrades and Fees

Dealers like rolling extended warranties and other goodies into the loan and will sometimes build these into the first payment quote. Buying these adds little to no value to the vehicle. They inflate the loan and can easily turn a loan upside down. Decide if you really need these extras. If you do, new car buyers can help control their financing expenses by paying for upgrades and optional features with cash. Similarly, buyers who pay for taxes, documentation fees and other costs up front will help buyers keep a healthy financial situation.

Get a Short Loan

As cars became more expensive, automakers created loans with longer terms to give buyers a chance to buy. Longer terms mean drivers pay more in interest and can easily become upside down. When buying a car, shoppers should only look at cars they can buy with short-term loans. In most cases, buyers should only accept loans that last 36 months or less.

In today's market, many car manufactures subsidize or guarantee the value of the car on a lease when it goes back to the dealer. This means a lower payment for you and, for some, a good deal. If you don't drive many miles and trade in your car every few years, a lease may make sense for you. Here the trick is to do all the same things you do when you buy the car: negotiate both the price and the interest rate, not just the payment.

The financial decisions car buyers make should minimize the size and duration of a loan while always keeping the outstanding balance lower than the value of the car. Now do your homework and then go shopping.