ORLANDO, Florida -- With interest rates for vehicle loans on the rise, and manufacturer incentives declining, it is now more important than ever for consumers to do their homework on vehicle loans prior to visiting the dealership.
"Last year it was not uncommon to see zero percent financing offers from dealerships as an incentive to get consumers to buy," said Scott Denman, managing director AAA Financial Services. "We are in an entirely different environment this year. Rates are up and incentives are down." Between April and December 2004, the national bank average on vehicle loan interest rates rose more than 1 percent for a 60-month new car loan, according to Bankrate.com.
"With interest rates rising and fewer incentives being offered, it is more important than ever for consumers to shop around for a loan before going to a dealership," said Denman.
New vehicle sales reached 16.8 million in 2004, surpassing projections slightly. In 2005, estimates are that another 16.9 million new vehicles will be sold.
"Consumers can make costly financing mistakes if they don't do their homework before they start shopping for a vehicle," said Denman. "By educating themselves first, and mapping out a game plan, consumers can gain the upper hand when negotiating their loan."
To help consumers get the best interest rates on car loans, AAA offers these tips on what to do before you start shopping for a car.
-- Check your credit rating. Credit score plays an important role in determining the interest rate you'll receive. Get a copy of your credit report, correct any errors promptly and identify open lines of credit you can close.
-- Explore financing options and compare rates. Many people know they can get a car loan from the dealer's finance department - but the rate is usually marked up to pay for this convenience. Before going to the dealer, use the Internet to research a combination of low rates, convenient application process and fast response so you know you're getting a competitive rate.
-- Arrive with financing in hand. Having approved, no-obligation financing in your pocket gives you a competitive advantage when you're ready to buy. That's because you know your interest rate and monthly payment in advance, which lets you shop with the power and flexibility of a cash buyer.
-- Weigh your purchase incentive options. Many auto manufacturers will offer a choice between a cash rebate or a discounted financing rate as a purchase incentive, but usually not both. Even if you're among the minority who qualifies for a zero percent rate, it may not provide the most savings. Sometimes you'll come out ahead by applying the rebate to the purchase price and using your own low interest rate loan.
-- Match the term of the loan to the 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 to keep their monthly payment low can find themselves "upside down" on their loan - that is, owing more on the car than it's worth in trade.
-- Take your time reviewing the contract. Don't put pen to paper until you know your interest rate, monthly payment, amount you are financing, the length of your loan and your trade-in value. Also, make sure unwanted, after-market "extras" haven't been added to the deal.
