Posted on: 23 October 2015Share
As soon as you have that down payment saved, you might be ready to start touring car dealerships and chatting with sales representatives about getting you into a new ride. Unfortunately, going shopping before you do your research could cause a serious case of buyer's remorse later. Here are two important things you should do before you hit the dealership:
1: Understand Your Interest Rate
Car dealerships love to advertise low interest rates, but how much will that rate really matter? Since interest rates are normally on the lower end, it might not seem like that big of deal if you qualify for an 11% rate over that ultra-low 3% deal. Unfortunately, a few percentage points can make a big difference when it comes to your monthly car payment. For example, if you want to buy a $20,000 car and you put $1,000 down, an 11% interest rate would give you a monthly payment of around $413. On the flip side, if you qualified for that 3% rate, your monthly payment would only be $341—a savings of $864 a year.
Since the interest rate that you qualify for is almost completely based off of your credit score, it is important to understand your score before you get started. Fortunately, some auto dealers, such as NCC Direct, Inc., have easy-to-use online calculation tools that can help you to get pre-qualified before you start shopping. By entering a few key pieces of information, you might be able to understand which interest rates you qualify for, so that you can figure out how much car you can afford.
However, if you find out that your credit score is less-than-ideal for a car shopping trip, you could always try these things to improve your score:
- Wait: Since bad marks like previous bankruptcies and late payments typically drop off of your credit report after 7 years, you might be able to lower your monthly payment by waiting a little. Before you start shopping, check your credit report to see if any of your bad marks are about to disappear. It might dramatically improve your interest rate.
- Pay Off Most Of Your Credit Card Debt: To boost your credit score in a hurry, see if you can pay off most of your credit card debt. Experts typically recommend keeping your credit card utilization under 30% to qualify for top interest rates.
To double-check your interest rate, talk with the financial office at your car dealership before you get started. An expert can evaluate your monthly budget to give you an idea of which makes and models would work for you.
2: Check the Yellow Book
If you aren't excited about haggling over that car price, you aren't alone. Believe it or not, a staggering 73% of car shoppers wish that there was a single fixed price for a car—just so that they can avoid the negotiation process. However, you might be able to make the process a lot simpler by checking the yellow book before you get started.
Although most people are familiar with the traditional NADA Blue Book values, those estimates are meant for consumers—not auto dealerships. If you go off of the blue book value to determine how much to pay for that car, you might unintentionally pay an inflated amount. However, the yellow book uses dealer information like recent retail sales to more accurately depict average vehicle values. Although this information is created by dealers for dealers, your public library might have a copy available at the reference desk.
Before you start shopping for a car, go to your local library and ask to see the yellow book, or the dealer version of the NADA blue book. By jotting down car values and trade-in estimates, you might be able to negotiate more effectively.
By doing your research before you start car shopping, you might be able to drive away with a car that you love—and a monthly payment that fits your budget.