Auto Financing 101
Auto financing is a potentially confusing process for car buyers since there are
many intricate terms and procedures involved that can make the car buying experience frustrating. To help with the car financing process, here is a list of the top important terms and concepts you should be aware of when you are researching for a car loan:Dealer Sticker Price: This is also called the Manufacturer's Suggested Retail Price (or MSRP). You will see the labels stuck on the side windows of cars that displays the dealer sticker price, and this is the starting price for negotiating. This means that the price is negotiable depending on one factor: how hot the car is on the market. For example, hybrids are popular and in high demand, and therefore offer a higher price tag. Gas-guzzlers, on the other hand, are not flying off the shelves and you can most likely expect to pay less than the MSRP. Of course, this fluctuates with gas prices and the economy. Research before to see what is in demand and popular.
Dealer Invoice Price: This is the price that the dealer pays the manufacturer for the vehicle. It is generally lower than the MSRP, since it does not take into effect the dealer's profit. Finding the invoice price can be tricky, and you may have better luck searching on the Internet for it then searching the car. Also, car experts suggest starting from this price and working your way up when haggling over the car price. Keep in mind that vehicles that are popular among car buyers will be more difficult to bargain with the price.
Annual Percentage Rate (APR): The fees and the expenses that are involved with borrowing the amount financed on an annual basis. For example, it may show, "3.5 percent for 60 months," "5.8 for 48 months", etc. Lenders calculate monthly payments over the length or term of the loan that include the APR, taxes, and other fees. In general, most people focus on the APR when shopping around for auto financing, which is not always the best way to do it. Typically, people seek out a lower interest rate, but forget about the term and this could cost them. Even if you get a lower APR, you may get a longer term that will actually cost you more over time.
Manufacturer's Rebate: Rebates are discounts offered by the manufacturer to the buyer to promote him or her to obtain a particular make and model that is not selling as quickly as the rest. With the rebate, the buyer can get a lower selling price on the car and get auto financing from a third party loan provider. This may be a better option for you then taking a lower APR at the dealership.
Dealer Auto Financing. There are other ways to obtain car financing instead of the traditional dealer financing, such as applying for an auto loan online. Getting an auto loan through the dealership is not the best option for car buyers, because the dealers have more pull and power in how they want to allocate and determine the amount financed for your car. The dealership can utilize techniques that can confuse the buyer and as a result, give the advantage to the dealership. The dealer can lower the loan APR, which might seem like a positive for the buyer. But, on the flip side, the dealer can lessen the price of the trade-in or increase the monthly car payment. It is recommended to walk into a car dealership with an auto loan already approved so that you have the leverage to negotiate with the car dealer on equal ground.
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