Everyone knows that car payment are a huge expense. Even if you’re lucky enough to find a new car for an affordable price, you’ll probably need to finance it in order to make the monthly payments affordable. But financing a car can be risky.
The average car loan has an APR of above 5%, which is expensive and leaves many people with little financial wiggle room. If you’re considering buying a car, read on for some tips about avoiding car debt and finding affordable financing options.
Shop around for the best financing options
If you already know the exact car you want, you should probably go ahead and buy it. But if you’re looking for a good deal, you should shop around for financing first.
Even if you plan to buy a cash car you should still talk to your bank and credit union about rates and terms. They might let you use a low-interest savings account to finance your car. That way, you’ll have the cash in your savings account if you ever need it for a car repair or another emergency.
If you have good credit, you might be able to get a lower interest rate on an auto loan. And if you have bad credit or no credit history, you might be able to get a good deal on financing through a dealer. If you go with a dealer, make sure they offer you a fixed interest rate. And be careful of hidden costs.
Check your credit score before you buy a car
If you don’t already have a car, you might have to take out a car loan to buy one. In that case, you’ll want to make sure you can afford the payments. If you don’t have a car loan yet, you might be able to get a lower interest rate if you improve your credit score.
You can get a free credit report from Experian, Equifax, or TransUnion. Your report shows your credit score and a list of your credit accounts. If you have bad credit and need a loan, you might be able to get a lower interest rate and better terms if you take the time to improve your credit score.
Get a loan through your bank or credit union
If you have good credit, you might be able to get a car loan through your bank or credit union. You can get pre-approved — which means they’ve already checked your credit and given you a rate.
That way, you’ll know exactly how much you’ll have to pay per month. You can also choose the length of the loan (for example, 36, 48, or 60 months). And you can use the loan to buy a car, or even a boat or RV.
You might have to put down a down payment or get a cosigner if you don’t have good credit. But you might get a lower interest rate than you would at a car dealership.
Buy with cash — or at least pay in cash upfront
If you can afford to buy a car in cash, you’ll avoid car debt altogether. Plus, you’ll probably save money on interest by avoiding a loan. You might be able to find a dealership that lets you pay in cash when you buy a car like Audi Q2. Or, you can search online for a cash car dealer.
You can also buy a car online and pay in cash upfront. If you decide to pay cash, you’ll need to be sure the seller is legitimate. You can check the seller’s reputation on sites like eBay and Autotrader.
You can also use a site like CarFax to find out the history of the car. If you don’t have the money, you can always look for a short-term loan. You can try a peer-to-peer loan company or a site like LendEDU. With peer-to-peer lending, you can borrow a set amount and set your own interest rate.
Check out leases and short-term loans
If you have bad credit, you might need to find an unusual way to finance your car. One option is to lease a car. With a lease, you pay an upfront amount and drive the car for a set period of time.
After that time is up, you turn the car in and start leasing a new one. You might be able to lease a car with bad credit. And you can drive a brand-new car with a lease. Some short-term lenders also offer loans that last as little as a month.
You can use these loans to buy a car and then pay them off the same way you would a credit card. You can also use a peer-to-peer loan for a short-term car loan.
If you don’t have enough money to buy a new car, you can always get a used car. Buying used can help you avoid car debt since you won’t have to finance the car. Plus, more people are choosing to buy used cars these days. You can search for used cars online or in your local paper.
And if you’re buying a used car, check for any existing issues that might pop up in the future. You can do this by having the car inspected at a mechanic’s shop. You can also check the CarFax history report to learn more about the car’s past.