1. Car Dealerships Profit On Auto Financing
Whether you decide to lease or purchase a car from a dealership, they profit from the interest rates charged. Essentially, auto dealerships receive a cut of the profits from the interest on your automobile loan. This is why cash buyers aren’t as desirable to a dealership. This is something to be aware of when shopping for your next car. Cash buyers may have more leverage when negotiating price, although the dealership may encourage them to finance the vehicle loan.
The auto dealership also makes a huge profit on add-ons such as extended auto warranties, fabric protection, and protective paint sealant. Thus, dealerships will try to sell these add-ons and wrap them up in your loan, profiting even more on the interest you pay on the add-ons. It is important to carefully review the auto loan financial terms and if you choose add-ons, you may want to pay for them separately.
2. Your Vehicle Loan Interest Rate Can Be Negotiated
We strongly encourage you to shop and compare loans before you step foot onto a car lot by gathering quotes from banks and Magilla Loans. This is a good way to determine what rates are available to you. Your interest rate is determined based on your credit score. The best rates, like 0% APRs, are offered to folks with great credit.
However, you may reduce your automobile financial rate by having a larger down payment or opting for a short term business vehicle loan. After you shop and compare the auto loans, you should have a ballpark number of what interest rate you qualify for. Once you have this number, then we suggest you begin to shop for cars. Keep in mind, if the interest rate you are offered isn’t very flexible, you can still negotiate the sale price, trade-in value, or ask for an extended auto warranty. Whether you have good or bad credit, we suggest you negotiate to get the best auto financial rates possible.
3. How Auto Cash Rebates Really Work
If you watch television, browse the Internet, or read the paper, you will notice the cash rebates that are periodically offered by car dealerships. Many auto dealerships give you the option to keep the cash or apply the rebate to the amount financed. This seems like a win-win for everyone.
However, what many consumers do not realize is the cash rebate does not affect the price of the car, it simply lowers the amount of money financed. Therefore, you still have the negotiating power you would normally have without the rebate. If you are not satisfied with the price of the car or the auto interest rate, you should negotiate. Lastly, do not let the cash rebate fool you into thinking it is free money.
The best use of an automobile cash rebate is to lower the overall principal of a car loan. This will lower the monthly car payments and reduce money spent on interest.
4. Short Term Auto Loans Have Lower APRs
A short term auto loan is generally a three year, 36-month loan. A shorter loan duration means a reduced risk for the lender. Essentially, a short-term loan lowers the amount of payments due, which lowers the opportunity for a borrower to default. So this can be a good option to pay off the loan quicker, however, the monthly car payments will be higher. Short term loans can also offer lower automobile interest rates which can be attractive to someone with less than perfect credit.
Another benefit of a short term loan is maintaining the value of the car. Cars depreciate quickly, and a 60-month auto loan can leave you owing more than the value of the car. This can cause the car to have negative equity which makes it almost impossible to trade-in the vehicle early. Thus, you may want to consider a short-term loan on your next vehicle if the numbers work for you.