Aiming for the best price on a new car is a simple matter of comparison, then avoiding the onslaught of up-charges thrown at you at the dealership. However, the purchase price isn’t your only expense. Financing has costs of its own, and if you’re not considering these, you may be paying too much.
The Total Cost
While an affordable monthly payment is important, it’s only one measurement of your car loan. Consider this: a house of 1,500 square feet might be perfect for you, until you find out the walls are only 3 feet high. To really see how your car loan measures up, you’ll need to consider the monthly payment, interest rate, and total term of the loan. Of these, the loan’s term may be the most significant factor when establishing the real cost of a car loan.
The Time Bomb
If you’re thinking about taking the longest term loan that you can to create the smallest monthly payment possible, you’ll cost yourself thousands. When the interest rate is the same, taking a five-year loan costs more than twice as much as a three-year loan. When you consider interest to be the purchase price for financing, take the term of the loan into account. Remember that you add to your total cost for every year you extend payments.
The Main Comparison
When you shopped for your car in the first place, you compared dealers, similar models, and even the same model with various options. Yet, relying on the selling dealer to arrange your car loan, you’ve throwing comparison shopping out the window. There are deals to be had through car dealerships. If you haven’t got quotes from other sources, you have no way of knowing the dealership loan is a smart buy.
And don’t forget your equity in the vehicle. When you choose a long-term loan, you owe more money than your car is worth, for a greater duration of the loan. That could mean an accident could leave you short after an insurance settlement.
As with fuel, routine maintenance, and insurance, financing your new car is an important part of the cost of car ownership.