5 Tips on How to Negotiate a Car Loan

Finally you have decided to buy a car. You have found the brand, model and color you want. Now comes the most difficult part: signing the documents. If you do not have the financing in place before visiting the dealer, you will need to apply for financing from the retailer. The seller and the financial manager will try to sell you everything from extended warranties to floor mats. You will need to be prepared for the unstoppable sales pitch that is about to come. In this post, I’m going to learn more about negotiating a car loan, which is one of the key areas you need to master when trying to take advantage of our 5 tips on how to buy a new or used car from a dealer.

Here are 5 great tips to help you negotiate the best offer:

1. Always negotiate the price.

1. Always negotiate the price.

This may seem simple enough but it can actually be difficult. One trick that car sellers often use is to get you to negotiate payments. You will be asked questions such as: “How much are you trying to pay per month?” Or “What do you want your payment to be?” Car dealers like to negotiate payments instead of the actual car price. This is because they want to set the price based on the maximum monthly payment you are willing to pay. If you fall in love with this tactic, you will end up paying a lot more for your car. Negotiate the price, not the car payments!

2. Keep the loan term as short as possible.

2. Keep the loan term as short as possible.

Dealers have come up with creative financing programs that will allow borrowers to reduce their monthly payments. They do this by extending the number of years on the car loan. Today, borrowers are allowed to finance a car for up to 7 years. This is absolutely ridiculous! A car is a depreciating asset and is losing value every year. The best loan term is 4 years or less. The maximum is 5 years. Under no circumstances should you ever take a car loan for 60 months or you may find yourself very well with an inverted car loan.

3. Skip all the extras.

3. Skip all the extras.

The financial managers will try to convince you to buy all the options available. They will sell you accident insurance, rust protection, fabric protection, extended warranties, paint protection and car alarms. Many of these are useful articles but the retailer’s markup is ridiculous. They make huge profits by taking customers away from these products. You can get warranty extensions and alarms for less expensive aftermarket cars. Anti-rust is not essential for modern cars. You can apply Scotchgard and paint protection yourself for a few dollars. Gap insurance is sold to most credit unions for a much lower price.

4. Say no to high-interest loans.

4. Say no to high-interest loans.

Your credit rating will determine the interest rate you get. Just because your credit isn’t tip-top doesn’t mean you have to take a loan with a ridiculously high interest rate. Individuals with good credit will receive loans with a single digit APR. Individuals with average credit can get loans from 10% to 12%. Individuals with bad credit will be offered loans at 15% or higher. Many people with bad credit accept loans with interest rates up to 24%. Never take a loan with exorbitant interest rates. No matter what your credit situation is, it is never worth paying usurious interest rates just for the right to own a car.

5. Keep the emotions out of your decision.

5. Keep the emotions out of your decision.

Buying a car can be an incredibly emotional decision. After you’ve gone out for a test drive and smelled that new car, it can be hard to leave. If the dealer is not willing to negotiate, you should be ready to leave. Remember that they are not doing you a favor by selling you a car. You are paying the money for this car. Do not let your feelings block you into a bad car loan that you will regret for years to come.

Have you got horror stories since you negotiated your car loan? Any additional advice you have for negotiating a car loan?

How to Get out of a Car Loan with Low Head with Negative Equity

In the housing sector, it is called “negative equity”. In the automotive sector it is called “upside down”. In both cases, it means the same thing: you owe more money to an asset than the same activity is worth.

When you’re upside down on a car loan, you can get into trouble because a car doesn’t grow in value as often happens in a home. You can list a car as a resource on the budget if you want, but in reality it is not a resource or an investment. It’s an expense.

If you are in this unfortunate position, you cannot lower your payment by refinancing and selling your property will not cover the entire loan. How did you get here and what can you do?

Get upside down on a car loan

upside down car loan

To understand how to get out of trouble, first you need to understand how you turned on a car loan.

  • A car devalues ​​very quickly, especially in your first three years of ownership. When you buy a car with a low deposit or no down payment, you immediately owe almost the entire purchase price, but it is already worth less. For example, if you buy a $ 20,000 car and only put a thousand dollars on it, you will remain upside down as soon as you start the car. You need $ 19,000, but the machine is worth only $ 16,000.
  • It’s easy to overpay if you don’t do your research before buying a car. Your overpayment does not make the car more worthy in the fair market, so if you pay $ 24,000 for a car that is now $ 16,000 you are upside down and you already have a big problem.
  • It’s not always your fault. When an unscrupulous car dealer takes advantage of you, you may end up having to overpay.
  • When you add too many frivolous options to your car, you increase the final total, but not the car’s value. This is a recipe to be turned upside down even faster.
  • If you’re already upside down on a car loan and trying to get a new loan, dealers will often roll the shortage from the old car to the new car without even telling you.

Unless you are on the alert when you buy a new or used car, it is easy to fall into these traps. In fact, it’s almost certain that at some point you will turn upside down. That’s why many people don’t even know when it happens to them. In the beginning, it is not necessarily a problem.

When being upside down becomes a problem

When being upside down becomes a problem

Being upside down on your car loan does not always require immediate attention. Of course, it’s not good news, especially if it means you’ve paid too much. But as long as you have a good deal on your loan, and make payments on time, the expense of your loan and the value of your car will eventually equalize, usually in no more than five years. The imbalance could only be temporary.

The problem comes when you can no longer comfortably afford the monthly car payment, either because of unemployment or job loss, income reduction, or another major negative change in your overall financial situation. When you’re upset and can’t cover your loan payment, you’re in a difficult financial situation.

How to get out of a car loan upside down

How to get out of a car loan upside down

The only real way to solve the problem of being turned upside down is to pay the excess debt. You’ll have to take a few steps and make sacrifices to manage the loan or raise the money, but the process is worth it. You can exit a payment that you can no longer afford.

1. Move excess car debt to a credit line 
Although many people rush at using credit cards, moving debt to a credit line may be the best option. If you have problems with a monthly payment of $ 600, switching to a more manageable rate on a $ 5,000 line can save you money and buy you some time.

The key is to avoid further problems. This plan only works if you can commit to lower regular payments on a credit line. If possible, get a line with a low introduction APR and pay as much as possible before the introductory period ends (ie 0% transfer of the APR balance for credit cards). Consider using peer-to-peer loan networks like the Lending Club or Prosper. A local credit union can also provide a personal loan at a reasonable rate.

2. Sell some things 
If the idea of ​​a credit line doesn’t suit you well, then you’ll have to increase the money. This means that it may be necessary to sacrifice something else to cover the car payment. The sale of important items such as extra furniture or jewelry could help or sell smaller items on eBay to raise funds.

Don’t count on the idea of ​​selling the car, even if it doesn’t cover all your surplus. If you owe $ 10,000 and can sell the car for $ 7,500, the $ 2,500 will be much more manageable than paying the entire loan. Keep in mind that your car will continue to depreciate in value, so as to get the most out of the sale you can.

3. Get a part-time job 
When you need more revenue, the only answer is often to get a second job. It doesn’t have to be a permanent deal, just a temporary fix until the car loan shortage is correct. This situation could also be the push you need to start your small business or find ways to make extra money on the side.

Avoid the problem

Avoid the problem

Let’s face it: cars will always devaluate quickly. As long as they have engines in them, they are going to fall like a rock in the price. Car dealers know this, and they almost always make more money when they finance themselves. When you’re ready for your next car, keep some tips in mind to avoid being turned upside down on a car loan.

1. Do not finance the purchase 
The easiest way to avoid being turned over is to not have a loan. You may have to settle for an older car, but try to save enough money to buy the vehicle without requiring a loan.

One day, I hope to find myself in a position where I can save enough money to buy a new car without it being a problem for my finances. Rich people do not finance cars. They pay cash for them and guide them for a long time. Make it your goal to stop the cycle from going from one car payment to another. If you break that cycle, you will be a step towards achieving independent wealth.

2. Pretend to buy a house 
Whether you’re buying a new luxury vehicle or an old low-mileage car, take the time to save your mortgage. Try to have at least 20% of the purchase price available in cash. This down payment will be the best defense against the horrendous depreciation that your new car will experience in the next two years.

3. Pay more than the specified monthly payment 
If you intend to finance, try to get a five-year loan so that the monthly payment is reduced. So, if you can, pay up to double the minimum payment. You will pay more capital in advance, which means that you will accumulate less interest. The faster you pay off the loan, the better.

4. Keep up with car maintenance 
Don’t accumulate miles. Stay on schedule with oil changes and engine maintenance, and take care of the paint job with frequent car washing and cleaning. If the “check engine” light comes on, address it quickly so that there is no bigger problem. Keep the interior clean. The better the machine is processed, the greater the resale value will be. Make sure you can check off “excellent conditions” when looking for value.

Final word

Final word

Being upside down on your car loan can be an extremely difficult and challenging prospect, but there is hope. By staying organized, disciplined and using some unique strategies, you can get out of this debt.

Are you upside down on your car, or have you ever been? How did you get into that position and what did you do to get out and fix things? I’d like to hear about your experiences and insights!