Auto Loans

If you don’t have enough money saved to purchase a car outright, you may decide to apply for an auto loan.  Auto loans can be obtained from banks, credit unions, or from car dealerships.  To get the best rate on an auto loan, it is important that you contact lenders directly and shop around for the best deal.  Do this before you begin shopping for a car!  Having your financing in place will help you to be realistic in what you can afford, and may even give you more leverage when negotiating a sales price or better financing from the dealer. When considering the features of an auto loan, don’t focus solely on the monthly payment. Consider the interest rate for the loan as well as the term, or the length of the loan repayment period.  Also, think about what savings you have available for a down payment.

Before you sign a contract, consider the terms of the loan and evaluate whether it is affordable. Before you drive off the lot, be sure to have a copy of the contract that both you and the dealer have signed. Be sure that all blanks are filled in.

Some dealers and lenders may ask you to buy credit insurance to pay off your loan if you should die or become disabled. Before you buy credit insurance, consider the cost and whether it’s worthwhile. Check your existing life or disability insurance policies to avoid duplicating benefits. Federal law does not require credit insurance. If your dealer requires you to buy credit insurance for car financing, it must be included in the cost of your loan. Your state Attorney General also may have requirements about credit insurance. Check with your state Insurance Commissioner or state consumer protection agency.

Buying a New Car

After considering your options, you may decide that owning a car is best for you.  Buying and maintaining a car is expensive.  Before buying a new car, consider these suggestions:

• Use vehicle comparison tools offered by the National Automobile Dealers Association (NADA), Edmunds or Kelley Blue Book to better understand the price of different brands and models as well as the cost of added features. These sites also offer estimates of the yearly maintenance and fuel costs.
• Shop around to get the best possible price by comparing models and prices at several dealers.
• Plan to negotiate on price. Dealers may be willing to reduce the price of the car from 10 to 20 percent. Usually, this is the difference between the manufacturer’s suggested retail price (MSRP) and the invoice price.
• Consider ordering your new car if you don’t see what you want on the dealer’s lot. This may involve a delay, but cars on the lot may have options you don’t want — and that can raise the price. However, dealers often want to sell their current inventory quickly, so you may be able to negotiate a good deal if an in-stock car meets your needs.

Buying a Used Car

Whether you buy a used car from a dealer or an individual:

• Examine the car using an inspection checklist.
• Test-drive the car under varied road conditions — on hills, highways, and in stop-and-go traffic.
• Ask for the car's maintenance record from the owner, dealer, or repair shop.
• As a mechanic to inspect the car.
• Determine the value of the vehicle before you negotiate the purchase. Check the National Automobile Dealers Association (NADA), Edmunds or Kelley Blue Book. These sites also offer estimates of the annual maintenance and fuel costs.
• Check whether there is any unrepaired recalls on a vehicle. Start by asking the owner or dealer if the vehicle you’re considering has a recall. You also can check yourself by entering the Vehicle Infomration Number (VIN) at safercar.gov. If there is a recall, ask the owner or the dealer to fix it, or to give you information showing it was fixed.
• Get an independent review of a vehicle's history. You can investigate a car's history by its VIN. Check a trusted database service that gathers information from state and local authorities, salvage yards, and insurance companies. Use CARFAX to get a report about the car.  It will include whether the car has been in accidents, car usage history and more. Or check the Department of Justice’s National Motor Vehicle Title Information System which offers information about a vehicle’s title, odometer data, and certain damage history. Expect to pay a nominal fee for each report. The National Insurance Crime Bureau (NICB) maintains a free database that includes flood damage and other information. Some dealer websites have links to free reports.

Finding your VIN

The VIN is often on the lower-left corner of the dashboard, in front of the steering wheel. You can read the number by looking through the windshield. The VIN may also appear in a number of other locations:

• Front of the engine block. This should be easy to spot by popping open the hood, and looking at the front of the engine.
• Front of the car frame, near the container that holds windshield washer fluid.
• Rear wheel well. Try looking up, directly above the tire.
• Inside the driver-side doorjamb. Open the door, and look underneath where the side-view mirror would be located if the door was shut.
• Driver-side doorpost. Open the door, and look near the spot where the door latches, not too far from the seatbelt return.
• Underneath the spare tire.

Leasing a Car

When you lease a car, you are essentially renting it from a bank or finance company. They agree to purchase the car and loan it to you for a monthly fee. The payments are based on the portion of the car you use over the term of the lease. Leases can range from two to five years, but are most commonly executed in three-year terms.

Leasing a car has both positives and negatives. Generally, leasing offers lower down payments, monthly payments, and maintenance fees.  

But, much like renting an apartment, you are not building equity. After making three years of payments, you still do not own the car. And, depending on the terms of your lease, you may be subject to additional fees for terminating your lease early or exceeding the mileage allowance.