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New Car Credit - How to Finance a New Car - Before Applying for a New Car Credit Line

loan options afford figure

With downturn of the economy in 2007 and 2008, many car dealers began offering special and discounts on new cars, making the prospect of owning a new car more likely for many people. If you are one of those who are considering taking advantage of these specials to buy a new car, then it is likely that you will need to finance it. If you have never obtained line of credit for a new car, then there are a few key steps that you will need to complete.

Before Applying for a New Car Credit Line

Before you ever walk on the car lot, you will need to take the time figure how much you can afford to pay in monthly payments. Consumer Reports suggests that you figure out what you can afford to pay for a car payment by figuring 36% of your gross monthly income and then subtracting your monthly bills from that figure (including mortgage payments or rent). Then you will need to figure how much you can afford to put down on the car or how much you expect to get with a trade-in vehicle. You can then use an online loan calculator (such at the one at Edmunds.com) to figure out how much your payments will be for different price levels. Be sure to consider registration fees, taxes, and other costs that are not included in the sticker price of the car.

Steps to Applying for a New Car Credit Line

Once you have an approximate idea of what you can afford to spend on a new car, you can start looking for financing. When applying for credit to buy the car, you have several options available. First, it is advisable to get pre-approved for a loan if you can. If you do this, you will know exactly how much you can (and can not) spend. When it comes to lender options, you could borrow directly from the dealer. While this process is sometimes faster and easier than other loan options, this can be more expensive, especially if you agree to the terms of a loan without researching other options. While dealers sometimes do offer the best rate, be sure to check other options before agreeing to a dealer-financed loan. Another possibility for financing a new car is to get a loan from a bank or credit union. More often than not, bank loans have lower rates than a dealer’s finance. New cars can be more difficult to obtain this way, though, because these loans are also hard to get and have more restrictions. Regardless of who you choose to finance your loan, make sure to shop around to get the lowest rate possible. In addition to the lender and loan rate, you will also need to consider the length of your loan. As much as possible, try to get a shorter term because this will cost less in the long term. For example, a four year loan for $15,000 at 8% will be $672 cheaper than a five year loan with the same terms.

With proper planning and budgeting, many people can afford to buy a new car. When choosing financing options, the most important rule of thumb is to shop around, and, if possible, to try to negotiate for a better rate.

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