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The interest rate that you get when taking out
a loan for a new or used car can vary quite a bit from the advertised
rates you see on TV or hear on the radio. One the biggest influence
on your rate is your credit rating. Your credit history and credit
score tell loan companies a lot about your spending habits and
are designed to give them an idea of what their risk is if they
loan you money. They often raise the interest rate if your loan
is seen as high-risk.
Another thing that affects a car loans interest rate is the length
of the loan. Typically, the shorter term the loan is for, the
lower the rate. Keep in mind that the shorter the term, the higher
your payments will be.
At the Dealership
While these are the usual things that affect the rate you get
through a bank or other financial institution, getting your car
loan through a dealership may or may not actually work this way.
When you take out a car loan with a car dealership, you have to
remember that the Finance and Insurance department is often a
bigger profit centre than the sales department. The business manager
sends your credit information to the lender(s) they deal with.
The business manager then takes the lowest approved interest rate
and marks it up. The marked-up amount is the dealership's profit
on the financing. There is no law saying the dealer has to reveal
that mark-up to you. This is why you have to keep your negotiating
hat on throughout the process! This financing is really just another
product the dealership sells.
Factory and dealer
rebates, 0% APR, and other special incentives
You're watching late-night TV, and between the commercials you
see a car ad that offers 0% interest or a $2,000 rebate on a car
you've been thinking about buying for months. Wow! What a deal!
You have to get to the dealership now! So the next day, you do
just that.
Factory-to-Consumer Rebates
First, let's find out what those offers mean. With the factory-to-consumer
rebate, there really is no catch. These are rebates the car manufacturer
offers directly to you as an incentive for you to buy a specific
car. They offer them when they see a larger number of that particular
car sitting on car lots than they would like to see. So, in order
to move the cars off the lots they offer the rebate. The rebates
are not part of the dealer's package and shouldn't even come into
play when you're negotiating the sales price with the salesperson.
Don't let them try to use the rebate as a way of making the purchase
price lower. You have the choice of applying the rebate to your
down payment (or not).
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