Consumers shop around to find or negotiate the best deal on a vehicle, but not everyone takes the time to find a car loan that works best for them.
Auto loans are the third biggest source of household debt for Americans, behind mortgages and student loans. So, failing to negotiate a good deal on a loan can end up costing you big bucks.
In an effort to put consumers in the driver’s seat, the federal Consumer Financial Protection Bureau has unveiled a “Know Before You Owe” shopping guide for car loans.
It provides step-by-step instructions to help you shop for a car loan, avoid common pitfalls and understand the actual cost of a loan. In a statement, Richard Cordray, CFPB director, says:
“Consumers should feel like they are in the driver’s seat when it comes to financing their car or truck. The CFPB’s auto loan shopping sheet provides a roadmap for consumers to navigate the complexities of a loan. Consumers should know before they owe when it comes to the total cost, not just the monthly payments.”
Click here for more information on the “Know Before You Owe” auto loan initiative
The CFPB recommends that you keep these tips in mind when shopping for a car loan:
- Look at the big picture beyond your estimated monthly car payment. “If you lower the monthly payment by taking out a longer loan, you pay more in interest,” the CFPB explains. You don’t want to end up upside down on a vehicle, where you owe more than the car is worth.
- Do your homework. Before going to a dealership, figure out how much you can afford each month and over the long term for a car payment. Then, figure in extra costs. Do you have a down payment? Do you need a co-signer on your loan? Do you plan on purchasing an extended warranty or extra car accessories?
- Shop around. The CFPB recommends shopping around and negotiating terms for a car loan that works for you. Banks, credit unions, auto dealers and other lenders all offer auto loans.
- Read before you sign. Purchasing a vehicle is a considerable financial investment, so take the time to review the car loan documents. Make sure you understand what you’re signing.
For more on this subject, check out “4 Ways Car Loans Can Go Wrong and How to Avoid Them.”
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