If you’re like most people, you are going to get a loan to finance the purchase of your next new or used vehicle. However, it can be difficult to determine at first glance if you got the best possible deal. Let’s take a look at some ways to tell if you got a loan with favorable terms.
Did You Get a Reasonable Interest Rate?
One way to tell if you got a good deal is to look at the loan’s interest rate. Generally speaking, those with good credit scores can get an interest rate of 5 percent or less. If you have average credit, it may be possible to get a loan with an interest rate between 6 and 8 percent.
Getting a low interest rate is ideal because it reduces the amount that you pay to the lender for the right to borrow the money. Using a company like Gladiator Lending may make sense for those looking for a great rate without having to go through a bank or other traditional lender.
How Much Are You Paying Overall?
In addition to interest paid to the lender, you have to consider the principal balance of the loan as well as taxes and other fees paid. These costs can be determined before visiting a dealer lot by using an online loan calculator. It is important to consider the cost of the car as opposed to looking at the monthly payment when deciding whether a loan represents a good deal.
This is because the monthly payment can be manipulated by extending the loan term or inflating the value of your trade. However, your goal is to pay off the loan as quickly as possible as the car itself represents a depreciating asset. Therefore, you need to know that the overall cost of the loan represents a fair market value both now and into the future.
Did You Get a Fair Price for Your Trade?
Ideally, the price of the new car and the value of your trade will be negotiated as two separate transactions. This is because the value of your current vehicle should be based on what it’s worth on the open market. If a dealer tries to base the value of your current car or truck on anything else, it may result in a bad deal overall.
It is important to note that dealers in many states will give you credit for the trade when determining how much sales tax you owe. For example, if you were buying a car priced at $10,000 and traded in a car worth $5,000, you would only pay sales tax on $5,000.
Be Sure to Shop Around
It is always a good idea to ask multiple lenders for a rate quote. Companies like Gladiator Lending will usually provide quotes for free based on information you provide. If a lender does make a loan offer, you are under no obligation to accept those terms. However, having a loan offer in your back pocket prior to visiting a dealership can provide leverage when it comes time to negotiate financing terms.