Buying a car is a big financial decision. If you don't research your options or rush the process, you could end up paying far more than you should on the purchase price, add-ons, interest, and documentation fees. The excitement of buying a car can fade fast if you discover you overspent.
You don’t have to be a financial expert to come out ahead. It just takes a little preparation. Let’s break down how to get a good deal on a car so you can keep more money in your pocket and enjoy your new ride.
How to Get the Best Deal on a Car
Buying a car doesn't have to be confusing or overwhelming. With a little planning, you can cut through the pressure and get a price that fits your budget.
Here are some ways you can get the most value for your money:
Do Your Homework
Before you set foot on a car dealership lot, take some time to research your options. Consider different makes, models, and reliability ratings. Some vehicles need more maintenance than others, use more fuel, or are more expensive to insure.
Don’t forget to check the resale value of the cars you’re considering. When it comes time to trade or sell your vehicle, a car with a stronger resale value can put more money back in your pocket and lower the overall cost of ownership.
Know Your Credit Score
Be sure to find out your credit score before you apply for auto financing. Lenders typically reward high credit scores with the best interest rates. A one-point difference in the rate might not sound like much, but it could add or save you hundreds or even thousands of dollars.
Get Pre-approved for Financing
Loan pre-approval is when a bank or credit union does a preliminary review of your finances and gives you an estimate of how much they will loan you, and at what interest rate. Getting pre-approved through a credit union is a smart option because they often offer lower rates, fewer fees, and more flexible terms than banks or dealerships.
Shop at the Right Time
Timing can make a big difference in how much you pay for a car. The best times to buy a car are usually during major holidays when dealerships offer promotions and incentives to draw shoppers in. Shopping during a slow day, like Monday, is another strategy. Less competition means you’ll have more negotiating power.
You may also negotiate a better dealer offer by shopping at the end of the month. Salespeople are often more flexible during this time because they're trying to meet monthly sales quotas. They may be more willing to lower prices or throw in extras to close the deal.
Compare Multiple Dealerships
Car prices can vary from one dealership to the next. Comparing door prices and offers can help you negotiate a better deal. If one dealership knows you've got a better offer elsewhere, they may be more willing to match or beat the suggested retail price to earn your business.
Look at Older Model Years
Each year, dealerships fill their lots with the newest models. To make room for new inventory, many offer special incentives and discounts on vehicles from the previous model year. You may get a discount on the sticker price by buying the previous model year instead of the newest model. In many cases, the only difference is a few minor design updates.
Avoid Unnecessary Ad-Ons
Many extras — like extended warranties, paint protection, interior protection, and vehicle identification number (VIN) etching — are often overpriced at dealerships. You may find the same services elsewhere for less, or you may not need them.
Consider Certified Pre-Owned (CPO) Vehicles
CPO cars are low-mileage used vehicles that have been inspected by a dealership or manufacturer and are backed with a warranty. They offer many of the benefits of buying new, but for less money.
Check the Vehicle’s History
Check out any car you are considering before finalizing the deal to make sure it’s in good condition. Go for a test drive to see if it performs as expected and everything works properly. Also, have a mechanic inspect it to make sure there are no hidden issues.
Walk Away (If You Can’t Get a Good Deal)
You don’t have to buy a vehicle if the deal doesn’t feel right. Walking away could save you from years of regret. It could also give you more negotiating power. A salesperson might be more flexible if they think they are about to lose a sale.
Why Get Pre-approved for a Car Loan?
Getting pre-approved at a credit union can make the car-buying process smoother and less stressful. The process just takes a few minutes, and it can save you time and hassle when you’re ready to close the deal.
Here’s how it can help:
- Stay within your limits: Pre-approval shows you exactly how much you can comfortably spend. This prevents you from wasting time looking at cars that are outside your budget.
- Get a great interest rate: Some dealerships mark up the interest rates on their loans by 1-2 points to earn more money. This markup could increase the total cost by hundreds or even thousands of dollars in interest charges.
- More negotiating power: Pre-approval can help you negotiate from a position of strength. If you are pre-approved for a car loan, the dealer will consider you a cash buyer. This helps you avoid the sales tactic of negotiating the monthly payment. You can negotiate the sales price instead.
How to Apply for a Car Loan
Applying for a car loan has never been easier. With many lenders, you can apply in person, online, or over the phone. You may even get approved the same day.
Here are the steps:
Step 1: Gather Your Information
To prevent delays, collect documents and information before you apply. Lenders typically ask for:
- Social Security number
- Driver’s license number
- Income and employment information
- Desired loan amount
- Trade-in information
- Preferred loan term
Step 2: Apply for Pre-approval
The next step in the process of how to get the best deal on a new car is to apply for auto loan pre-approval. You can apply online at any time, and you'll be quickly notified if you've been approved with the details.
Step 3: Go Car Shopping
With pre-approval in hand, you can now focus on finding the right vehicle. Loan pre-approval can also be used as leverage to secure a better deal.
Step 4: Pick Up Your Check
When it's time to close the deal, visit your local credit union branch to finalize the financing and pick up a check for the purchase amount. Take that check to the dealership to complete the purchase.
Step 5: Send the Title to Your Lender
Your lender will hold the car title until you’ve fully repaid the loan.
How to Save Money on Interest
The sticker price isn’t all you’ll pay when you buy a car. Interest on your car loan increases the total. There are several ways to save on this expense, and even a slight reduction in your rate can result in big savings.
Here are several ways to save on interest:
Improve Your Credit Score (If Needed)
Borrowers with high credit scores usually receive the best interest rates on their car loans. Be sure to check your credit score before you apply for financing to see where you stand.
There are some ways to improve your score, if needed. You can pay down debt, make on-time payments, and clear up any errors on your credit report. Keep in mind that it could take several months before these improvements are reflected in your score.
Shop Around for Financing
Many car buyers accept dealership financing without considering other options. However, this often isn't the best choice since many dealerships mark up interest rates to increase their profit. You can usually get a better deal on car financing by shopping around and comparing bank and credit union offers.
Credit unions, like Credit Union of America, usually have the best rates and lowest fees. As not-for-profit organizations, they aren't concerned with earning profits for investors. They are focused on serving the needs of their members.
Make a Larger Down Payment
Putting more money down when you buy reduces the amount you have to finance. Since interest is only charged on what you borrow, a bigger down payment lowers the total cost of your loan.
Choose a Shorter Loan Term
A shorter loan term will increase your monthly payment, but it significantly reduces the total interest you'll pay over the life of the loan.
Make Extra Payments Toward the Principal
Paying extra toward the principal lowers the balance faster and reduces the total interest you'll pay. Even small additional payments can make a big difference.
Car Loan Common Terms
Car loan terms can sound confusing, and many buyers sign loan agreements without fully understanding them. Learning the basics can help you compare offers to find the best deal.
Here are some common car loan terms you’ll need to know:
Interest
Interest is the cost of borrowing money from a lender. When you make your monthly payment, part of it goes to repay the money you borrowed. The rest is an interest payment.
Principal
The principal is the money you borrow to pay for your car. For example, if you borrow $40,000, that amount is the principal.
Annual Percentage Rate
The annual percentage rate (APR) shows the yearly cost of your loan. It includes both interest and fees. It's expressed as a percentage, and the lower the APR, the less your loan will cost.
Down Payment
The down payment is the amount you pay up front for your car. For example, if you are buying a $40,000 car, you might make a $5,000 down payment and finance the remaining $35,000.
Loan Term
The loan term refers to the length of time you have to repay your loan. Credit Union of America offers new vehicle financing with terms up to 84 months to give members more flexible payment options that fit their budgets.
Monthly Payment
The monthly payment is the amount you pay each month until the loan is fully repaid. It includes the principal, interest, and any fees.
Total Cost
The total cost of an auto loan includes the amount you borrow (the principal), plus all interest and fees paid over the life of the loan.
Drive Away with a Great Deal
Buying a car doesn't have to be stressful or expensive. The key is to be prepared before you start shopping. With a little planning, you can avoid unnecessary costs and save on interest. This allows you to spend more time shopping for the perfect car instead of worrying about paying more than you should.
Looking for a great deal on your next car? Discover how much you can save with our low auto loan rates. Our dedicated team is ready to help every step of the way.
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