Car Loans; Lets Make Them Easy

The next thing after buying a home and funding your children's education, buying a car is what you'll think of. So, let me make you familiar with the ABC of car purchase and loans.

You should know your limits and what you should be spending before looking for a new car. As per the experts, not more than 10 percent of your gross income should be spent on car expenses, which includes the cost of the car along with insurance, gas and maintenance.

After deciding the price range, you will want to decide how much you can put down as a down payment and then negotiate the price of your car. The suggestion given by experts in this case is never to finance more than 80 percent of the true cost of the car. At least 20 percent or more should be paid in cash or the equity of your trade.

After you negotiate the price of your car, the dealer will send you to their financing department. The dealers do have less restrictive credit requirements than banks, but you have to be careful of the cut-rate financing deals that they frequently push. These attractive 3 percent interest rates may apply only to certain models or short-term loans of up to 12 months. Dealers make a lot of money on financing, even when it's done through the manufacturer.

Always negotiate the price before you reveal that you are thinking about dealer financing. If they know ahead of time that you plan to finance, they will frequently try to confuse the issue by giving you a lower rate on a higher price or a lower price at a higher finance rate.

But if you decide to finance through the car dealer, you can negotiate the interest rate. Dealerships usually have several loan sources, including local banks and the manufacturer's credit company. Each source sets their rates to the dealer.

Also, it is very important to investigate other sources for an auto loan before the final signatures on the finance papers. Investigate your financing options and find out from banks or credit unions if they have any special deals right now.

Another possibility you can opt is a home equity loan or line of credit. With a home equity loan, you are borrowing against the value of your home. Not only are interest rates lower than those for auto dealer loans, but the interest on home equity loans and lines of credit are usually tax deductible.