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(ARA) - With interest rates on the rise and purchase incentives declining, a new national survey reveals that today’s car buyers are steering their attention more sharply toward the financing arrangements for their vehicle purchases, including more loan shopping and budgeting compared to last year’s buyers.
The survey of more than 1,000 recent and prospective auto buyers commissioned by Capital One shows consumers plan to be more rigorous loan shoppers. Among consumers planning to purchase a vehicle in the next year, 57 percent say they will comparison shop for car loans through multiple financing sources before buying, up from 37 percent of those who bought a car in the past year.
“The Federal Reserve has raised interest rates eight times since last June, and manufacturer purchase incentives have fallen six of the last nine months,” said Diana Don Colby, director of financial education at leading financial services company Capital One. “Shopping for loans before you buy has always been a smart idea, but with rates climbing, it’s become even more important.”
Today’s car buyers also say they plan to be more disciplined budgeters. According to the survey, 84 percent of those planning to buy in the coming year say they plan to develop a budget for their purchase, compared to 65 percent of buyers from the previous year.
The study also found that those preparing to buy a vehicle in the next year appear more likely to view financial aspects -- such as their loan and purchase price -- to be the most important part of their buying experience. Approximately half (49 percent) of consumers planning to buy in the coming year ranked financial issues as the most critical areas of a satisfying transaction, compared to about one-third (32 percent) of those who bought in the last year.
“People who overlook their car loans are making an expensive mistake,” said Jack R. Nerad, editorial director of Kelley Blue Book’s kbb.com. “The difference of just two percentage points on your APR can either save or cost you about $1,400 over the life of a five-year, $25,000 loan. There are some excellent resources available to help consumers shop for car loans, but many people don’t know where to begin.”
Kelley Blue Book and Capital One offer the following tips to help keep car buyers on track to a smart deal on their next vehicle loan.
* Set a realistic budget. Choose a vehicle that won’t overextend you financially. A general rule of thumb is that no more than 15 percent to 20 percent of your total monthly budget should go toward all of your car-related expenses.
* Verify your credit record. Order a copy of your credit report to ensure it’s accurate and in good shape. Correct any errors before applying for a loan.
* Comparison shop for loans. Check out credit unions, banks and online lenders to see what rates are available in the market, so that you know a competitive rate when you see one.
* Arrive with financing in your pocket. Having approved, no-obligation financing in hand gives you a competitive advantage when you go to buy, giving you the power of a cash buyer. If the dealer offers a better loan rate, you can take it with no penalty.
* Approach your purchase as three transactions. It’s best to treat each part of the purchase separately: 1) financing; 2) trade-in; and 3) vehicle purchase. This will simplify the process and maximize your negotiating opportunities.
* Match length of loan to expected length of ownership. Select your loan term based on how long you plan to own the vehicle. Buyers who take out longer-term loans can find themselves “upside down” on their loan (owing more money on the car than it’s worth in trade).
* Review your financing terms carefully. Make sure you know your interest rate, monthly payment, amount you are financing, the length of your loan and your trade-in value.
Courtesy of ARA Content