Before falling in love with a red — or midnight blue — car, it’s a good idea to do a bit more homework than simply deciding what you’d like to spend on a monthly car payment.
Car loans continue to be relatively low — and plentiful. But the origination of new car loans for subprime borrowers has hit a record low, according to Experian’s data through the third quarter.
So paying attention to your credit score matters.
The average new car loan amount was $30,329 for vehicles financed in the third quarter, according to Experian.
Borrowers with bad credit financed far less. The average new car loan amount was $25,031 for vehicles financed in the third quarter for borrowers with deep subprime credit, defined as a consumer with credit scores in the range of 300 to 500.
The average new car loan payment overall was $502; the average new lease payment was $412 a month.
To hold down their overall costs, car buyers can take a variety of steps. Car shopping tips include:
Shop for a car loan before buying the car
“Line up financing before you go to the dealership by shopping around among banks and credit unions,” said Greg McBride, chief financial analyst for Bankrate.com. Some large banks and credit unions can have some of the more competitive car loan rates available.
Get a free copy of your credit report before applying for a car loan
See www.annualcreditreport.com. Given issues with identity theft, you don’t want to be stuck paying a higher interest rate because you didn’t realize that someone opened a credit card in your name, didn’t pay the bill and hurt your credit score.
Fix up mistakes or ID theft issues first. If your score is low, it helps to understand that you’d pay a much higher rate on a car loan.
Review your credit report and know your credit score before getting your heart set on a car.
Think about a used car
Considering a used car is useful, especially if you’re looking at double-digit interest rates because your credit is weak.
“Even consider buying a low-priced used car from a private party to avoid the need for financing altogether,” McBride said.
Pay attention to price
Experts say you want to negotiate the price of the car before anything else. Look at the extra costs of some features. If you don’t want to pay for a special wheel and tire package or a higher-end paint color, see if you can find a similar model with less costly features.
Don’t discuss the monthly payment — until you find the right car and agree to the right price. If you’re not careful, you could end up taking on a longer term loan, say 65 months, instead of 60 months, just to keep the monthly payment low.
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Look beyond the truck and SUV
“Go where others aren’t,” said Michelle Krebs, senior analyst at Autotrader.
“Most consumers are gravitating towards crossovers and sport utilities, so look at cars.”
She noted that small, midsize and large cars — new and used — are in the doldrums in terms of sales so they have the biggest incentives and more negotiating room.
Krebs gave this example: GM announced a $3,000 Detroit Auto Show Bonus on the 2017 Buick LaCrosse in January. The 2017 LaCrosse already had $7,000 in guaranteed cash on it. In addition, other offers may be eligible to stack with these guaranteed cash offers. The result could be up to $14,000 off a 2017 LaCrosse when combined with dealer flex cash in the Detroit area, she said. The vehicle starts around $32,065.
Experts say this is one of the richest programs seen on a GM luxury sedan.
“I will note we saw similar deals on Chrysler 300 models this fall,” she said.
Do your research
Research incentives and shop around. Compare new and used. And talk to different dealers. One car buyer said he saved about $3,000 on a vehicle simply by being willing to drive 30 miles or so to another dealership.
“We have a large number of nearly new off-lease vehicles coming back onto the market,” Krebs said.
“They may represent some really good deals. But, as with the LaCrosse, the new version may have very rich incentives — and you may well get the new one for pretty close to the same as the nearly-new and you get a new car with a new-car warranty.”
Don’t be afraid to look into refinancing a car loan
Dyana Curtis, 32, of Detroit, said she was able to get her car payment down to $318 a month from around $500 after refinancing with her credit union. She refinanced more than a year after she bought her Chevy Camaro and she had paid off some other bills by then to improve her credit.
“I love my car,” she said.
“I wanted that car since I was 16 years old,” Curtis said. “If you can afford it, you should get what you want.”
The color? A deep, midnight blue, she said.