Buying a car can be a daunting task, and paying for it can be even scarier. You may wonder, how does financing a car work, exactly? And what are the pros and cons of financing a car?But don’t worry—we’re here to help make your car buying experience as smooth as possible, from finding it to financing it. There are a few important steps that every car buyer should know, and they’re listed below so that you can drive your next car home knowing that you made a good deal.
Establish a Budget
The first step in financing a car purchase is to set a budget. It’s important to know what you’re willing to spend each month on a car payment (don’t forget to include insurance), and then refine your search accordingly. Because ultimately, what you can afford will dictate what you’re going to drive. TRED makes this easy by offering a budget tool you can use when you’re browsing available cars. Simply use the “price” slider to make sure that you’re staying within your budget.
Do Your Research
Now that you know what you want to spend, it’s time to decide what you want to drive. Start by figuring out what type of car best suits your lifestyle. If you frequent the mountains and enjoy visiting scenic hiking trails, for example, you’ll probably be best served by a Crossover or SUV that can reliably get you to those far away destinations with room for all your gear. If you prefer a lower, leaner, and meaner look with similar functionality, a sport wagon is a great, fun and—if you choose the right one—sleek alternative.
After deciding on the type of vehicle you’d like, think about some options that are must-haves for you. Do you need the performance of a more powerful engine, the convenience of an onboard navigation system, or the luxury of ventilated leather seats? Doing some basic prioritizing like this will quickly and effectively help you decide what type of options packages and trim levels you’ll be looking for.
Find Your Car
Now that you know what type of car you want, and which options, it’s time to find the one for you. Finding the perfect car can take time, so the best advice is simple: don’t rush it. Take your time refining your search and settling on the right car. To buy a used car with confidence from a private seller, you can use TRED and all of its search and refinement tools to browse the best cars in your area. Be sure to pay attention to mileage and the aesthetic condition of the car. Additionally, analyzing CARFAX reports can help you learn more about the car you’re buying. All cars listed on TRED include one—you can look for things like service performed at dealerships, a clean title, not too many owners, and—most importantly—no accidents.
Beyond the CARFAX, all cars listed on TRED come pre-inspected by an ASE-certified mechanic, so be sure to look over the inspection report to learn more about the mechanical status of the car you’re buying.
Figure Out How You Want to Pay
So you’ve found the perfect car. Super exciting! However, now comes the part that scares most buyers: payment. If you’re like most people, it’s likely that you’ll be looking to take out a loan on your new-to-you car. You might be thinking, “but I thought we were talking about buying a car from a private seller?” That’s right, and TRED is unique in that it offers financing just as a dealership would, but without the big price markup on the car.
There are a few things you should consider about financing a car before you decide to make a move. What is the cost of financing a car, beyond the actual purchase price? What’s the cost of financing a car vs paying cash? What’s the best strategy to minimize that cost?
A general rule of thumb is to opt for the shortest payment term that you can afford. In other words, it’s better to pay for the car over 24 months rather than 36. Shorter terms are generally accompanied by lower interest rates at the expense of higher monthly payments. This is what you should be looking for. Although the higher monthly payments can be intimidating, you don’t want to be paying a lot of interest on a loan for a depreciating asset, like a car. And if you pay attention to market trends, you know that cars can depreciate rather quickly.
Another factor that can determine the terms of your loan is the down payment that you choose to make when you buy your car. The higher your down payment is, the lower your monthly payments will be. Generally, if you can make a larger down payment, you’ll be better off down the road. A good place to start is 15% to 20% of the total price.
When financing a car, it’s also important to keep your credit score in mind. Unfortunately, if your credit score is less than perfect, you may have to settle for less favorable loan terms (read: higher interest rates.) However, this doesn’t mean you can’t still get a good deal. Just do your research and be sure that you’re getting a fair deal relative to your credit score.
Now that you’ve got the inside scoop on purchasing your next car, you’re ready to go find it. With TRED, you’re only a few clicks away from finding your next ride. Check out our current inventory here.