Avoiding auto loans that backfire on you

Mon, 21 Jul 2008

Skidding sticker prices may have you revving up to buy a new set of wheels, but steering clear of a bad loan is critical.

"Everybody focuses on the negotiating for the car, [but] the most important thing is to make sure you get it financed correctly," said Philip Reed of Edmunds.com.

The key is research. Web sites like Bankrate.com can give you a sense of going interest rates. While getting a loan right at the dealership is convenient and might be the best option, lining up independent financing from a bank or credit union first can be a bargaining chip. Banks like Capital One and Wells Fargo give pre-approval for auto loans online.

And there's another reason to come prepared: Advertised incentives like 0% financing are enticing, but without stellar credit, they could be a mirage.

"Very few people actually qualify for those loans," said Jeff Bartlett of ConsumerReports.org.Negotiate the car price as if you were paying cash, and discuss trade-in and financing terms separately. Making deals based solely on a monthly payment can hide all kinds of extra fees and charges.

If you have the option of low dealer financing or a cash rebate, run the numbers. Taking the rebate and getting a loan elsewhere might be a better deal.

Consider the total cost of interest you're paying over time, Bartlett said. "There's a temptation to want a lower payment, but a longer term would be required to do that."

source: http://www.nydailynews.com/