5 Tips on How to Negotiate a Car Loan
You have finally settled on buying an automobile. You have found the exact make, model, and color that you want. Now comes the most difficult part: signing the papers. If you don’t have your financing in place before visiting the dealership, then you will have to apply for dealer financing. The salesman and finance manager will try to sell you everything from extended warranties to floor mats. You will have to be prepared for the never-ending sales pitch that is about to come. In this post, I am going to delve into how to negotiate a car loan, which is one of the key areas you need to master when trying to take advantage of our 5 tips on how to buy a new or used car from a dealer.
Here are 5 great tips to help you negotiate the best deal:
1. Always negotiate the price.
This may sound simple enough but it can actually be difficult. One trick that is often used by car salesmen is to get you negotiating payments. You will be asked questions like: “How much are you looking to pay per month?” or “What do you want your payment to be?” Car salesmen love to negotiate payments as opposed to the actual price of the car. That’s because they want to set the price based on the maximum monthly payment that you are willing to pay. If you fall for this tactic, you will end up paying a whole lot more for your car. Negotiate the price, not car payments!
2. Keep your loan term as short as possible.
Dealers have come up with creative financing programs that will allow borrowers to lower their monthly payments. They do this by lengthening the number of years on the auto loan. Today, borrowers are allowed to finance a car for up to 7 years. This is absolutely ludicrous! A car is a depreciating asset and is losing value every year. The best loan term is 4 years or less. The maximum is 5 years. Under no circumstances should you ever take a car loan over 60 months or you could very well find yourself with an upside down car loan.
Finance managers will try to get you to buy every option available. They will sell you gap insurance, rustproofing, fabric protection, extended warranties, paint protection, and car alarms. Many of these are useful items but the dealer markup is ridiculous. They make huge profits by ripping customers off on these products. You can get extended warranties and car alarms cheaper aftermarket. Rustproofing is not essential for modern cars. You can apply Scotchgard and paint protection yourself for a few bucks. Gap insurance is sold at most credit unions for a much lower price.
4. Say no to high interest loans.
Your credit rating will determine the interest rate that you get. Just because your credit is not tip-top does not mean that you have to take a loan with a ridiculously high interest rate. Individuals with good credit will get loans with single digit APRs. Individuals with average credit may get loans at 10% to 12%. Individuals with bad credit will be offered loans at 15% or higher. Many people with bad credit accept loans with interest rates as high as 24%. Never take a loan with exorbitant interest rates. No matter what your credit situation, it is never worth paying usurious interest rates just for the right to own a car.
5. Keep emotions out of your decision.
Buying a car can be an incredibly emotional decision. After you have gone out for a test drive and gotten a whiff of that new car smell, it can be difficult to leave. If the dealership is unwilling to negotiate, you should be prepared to walk away. Remember that they are not doing you a favor by selling you a car. You are paying money for this automobile. Don’t allow your feelings to get you stuck in a bad car loan that you will regret for years to come.
Do you have any horror stories from when you negotiated your auto loan? Any additional tips you have for negotiating a car loan?
how to get a loan at 17
Ajay was happy. His daughter had got shortisted for admission to one of the best school in the town. He now required to pay an upfront payment of Rs. 1 lac to secure the admission.
He did not have the amount readily available with him. So, he walked down to his bank and applied for a personal loan.
After 3 days, he followed up with the bank only to know that his application has been rejected.
On inquiring the reason, he was told that he had a low CIBIL credit score. He was unhappy.
Ajay’s is not alone in facing a loan rejection. Several other people face the same ordeal when accessing loans to fulfil one or other other important need that they have.
A CIBIL Credit Score is a representation of your credit worthiness. It is assembled from the data about your loans and credit cards that are supplied by various banks to CIBIL. The score ranges from 300 to 900.
Do you know? Most loan applications that are approved by banks have a CIBIL credit score of 750 or more.
Image Source: CIBIL, June 25, 2015; The number in blue background is the CIBIL score.
As it stands, the CIBIL Credit Score is a key parameter in deciding whether you will get a loan or not.
Ajay discovered that his CIBIL Score was just 650. That is way below required.
His bank manager also told him that with this score, it would be difficult to get a loan from any other bank too.
He had many questions in his mind.
“Why is my credit score low? I don’t even use credit cards anymore.?”
“How can I improve this score quickly?”
“What do I do now to pay the school admission fees?”
Well, there could have been several reasons for a low credit score most important being, no timely payments of loans in the past, taking on too much credit, wrong information provided by banks, etc.
Whatever the case might be, it is not possible to improve your score immediately. It can easily take 6 months to a few years to get your credit score back on track.
Ajay didn’t have so much time. For him, the last question of arranging money for the school fees was the most important as of now.
Since the doors of the banks were closed to him, he didn’t want to waste any more time. He was actively looking for other sources for the loan.
As he searched the internet, he came across the alternative loan platform of peer to peer lending.
Individual borrowers and lenders come together on this platform to take and offer loans. He found this interesting.
The platform screened the borrowers on various parameters and allowed them to set an interest rate that they were willing to pay for the loan amount.
The lenders would then connect with the borrowers and on mutual agreement the loan would be made.
The payments are made in monthly instalments.
Ajay decided to try this out. All it required was to sign up and provide some basic details about himself.
The best part was that the screening went beyond the CIBIL credit score and evaluated 30+ other parameters such as financial behaviour, future financial prospects, education, demographics, socio-economic conditions, etc.
This brings out a holistic profile of an individual. Through this model a proprietary credit score is generated by the system, which then enables even someone like Ajay, who has a low CIBIL score, to access a loan.
Ajay provided all the required information and submitted his loan requirement of Rs. 1 lac for 1 year.
The very next day he received offers from multiple lenders that too at a rate of 18%.
Ajay was glad. The platform took care of the entire process and arranged the loan agreement between Ajay and the lenders. As soon as the amount arrived in his bank account, he paid the school admission fees.
Ajay is happy that he could get his daughter admission to one of the best schools in the city. He wants her to have the best possible education.