How Auto Loans from Dealers Work
By Jacob Joseph
DEALER AUTO FINANCING
Car dealers are notorious for using hardball tactics in order to try and sell you a vehicle. The same holds true when they try to get you to utilize their dealership for financing.
Featured below is insightful information that will help you understand how dealer financing works, helping you avoid the chance of being 'ripped' off.
Staying Away From Monthly Payment Traps
When negotiating your new car purchase, the dealer is going to ask you how much you want to pay. They will likely entice you by offering plans with very low monthly payments. Be aware that the lower your payments are going to be, the longer your loan term is going to have to be, thus resulting in you paying more money in interest over the duration of the loan. You want to find a loan amount and term that is going to get you the money you need without putting a strain on your wallet.
Avoid Becoming 'Upside Down' on Your Auto Loan
Dealers are also going to likely offer you financing programs that require no money down or 0% interest for say the first six or 12 months. This deals sound great but in actuality are very bad. When you choose to leave no money down, or to reduce your monthly payments by increasing your loan term for as long as possible, you end up become upside-down on your loan very quickly. This means owning more for your car than it is actually worth.
You can avoid becoming upside down by leaving a minimum down payment of 20%. You can further minimize the chance of owing more than you car is worth by utilizing a car loan for as few years as possible. Be aware that you still want to have car loan payments that you can afford.
A good idea would be to use an auto loan calculator so that you can anticipate what kind of rates to expect and how much it will cost you every month for different loan terms and amount.
The Dealer Makes Money from Your Financing
As a result of the millions of dollars in business dealers send to banks every year, the banks offer very good interest rates for the dealer to sell. Meaning, the bank will tell the dealer they want 'X' interest for the car loan. The dealer will in turn offer the customer a little more than 'X' and pocket the extra. Its anything short of being very shady, but this goes on.
Understanding the Rule of 78
'Rule of 78' is when all of the interest rate from your car loan is paid off in the first year of the loan. This means you won't be able to eliminate some the cost of interest you pay by increasing your monthly payment or by selling your vehicle before the conclusion of your loan. Also, loans that utilize the 'Rule of 78' will almost most likely result in you becoming upside-down on your loan.
Extra-fees and add-ons
Dealers are going to look to squeeze every penny out of you when applying for a car loan with them. Read the fine print of any contract and make sure that you understand exactly what you are obligated to pay for, and what you are not.
In conclusion...
Before accepting any car loan offer from a dealer, do your homework. Check out several online sites and services to see if you can find an loan that is comparable, if not better than the dealer's offer.
Jacob Joseph is a financial expert for http://www.starloanservices.com. At Star Loan Services you can get approved for a bad credit auto loan.
Article Source: http://EzineArticles.com/?expert=Jacob_Joseph
http://EzineArticles.com/?How-Auto-Loans-from-Dealers-Work&id=427781
Learn how dealership financing works and the scams dealers use to try and pull to make extra money.
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