There’s nothing like the new car smell, shining paint, and all the latest features that come with a new car. However, the process leading up to the big moment of driving your car off the lot may seem intimidating. Whether you’re buying your first car or your fifth one, we’re here to help make the process as smooth as possible.
We’ve asked our lending expert, Tracy, a centralized lending manager, to provide helpful tips and answers to frequently asked questions from our members about financing a new car.
How do I know how much I can afford?
Tracy C.: You may have your heart set on a specific car, but can you afford it? Will you still be able to maintain your current budget and lifestyle if you purchase the car? Before you start shopping for a new car, you’ll want to take a realistic look at your finances. Start by creating a budget to determine how much you can afford to spend each month on a new car.
TC: Yes, it matters! Your credit score is a reflection of how much risk you present with paying off debt. It helps us determine the interest rate you’ll pay to finance the car loan. If you have a higher credit score, you may be offered a lower interest rate. On the flip side, if you have a lower credit score, you may have a higher interest rate. A higher credit score tells us that you’re likely to repay the loan. A lower credit score tells us there may be a greater risk of failing to pay off a loan or risk of missing or making late payments on the loan.
Keep this in mind when you’re considering loan term options. With a longer loan term, your monthly payments are lower compared to a shorter loan term. However, suppose your budget allows for a higher monthly payment. In that case, you can get a shorter loan term which will allow you to pay your car off sooner and potentially save on the total amount of interest you’ll pay.
Do I need a down payment?
TC: At AllSouth, a down payment is not required to finance a car. However, if you’ve saved for a down payment, making one is usually a good idea. A down payment reduces the amount you borrow, lowers your monthly payment, and you’ll pay less on the total interest of the loan. With a down payment, you may avoid being upside down (owing more on the car than it’s worth) on the loan in the future, which could make it difficult to trade or sell your car later on.
Should I buy or lease?
TC: Start by asking yourself a few questions such as, what are my intentions for the car? How long do I plan to keep it before I purchase the next one? Would I save money over time by buying the car instead of leasing it? If you’re someone who keeps their cars long term and ownership is important, buying may be the best option for you. Your monthly payments may be higher, but you’ll save money in the long run because once the loan is paid off, the car belongs to you.
On the other hand, if you’re someone who likes to drive the latest car and switches it up every few years and car ownership isn’t a significant factor for you, leasing may be an option to consider. Leasing may also be a good option for you if you want a lower monthly payment or don’t want or can’t make a down payment.
When it comes to getting a car loan, there are never too many questions to ask. The more you know and better prepared you are, the less intimidating and confusing the buying process can be. If you have additional questions or need assistance with getting started, our team members are happy to help walk you through the process.
* Loan rates and terms based on creditworthiness and qualifying purchases. Rates are subject to change without notice.