There are times to ask questions and times to stay silent. Buying a new car is a time to ask questions.
When going over financing options on a new or used vehicle with a dealership, questions can be the difference between a customer fully understanding the agreement or signing a financial document unaware of what they are responsible for. Ask the right questions and know your financial obligations when purchasing a car and it will save you a lot of surprise down the road.
Car financing can be confusing for those not well-versed in loans or financial legal jargon. Some customers might find financing terms confusing and the paperwork overwhelming, and often do. Car buyers may also find themselves embarrassed to ask what a term or passage from the agreement means in layman’s terms.
Don’t be embarrassed or afraid to ask. This is your money and your new car.
So not only is it wise to ask for an explanation of the financing on a car, it is the law that a borrower be given a Truth in Lending Disclosure, which should be automatically included within your agreement. This document will detail in plain language the terms and conditions of the financing agreement and how much purchasing the vehicle will cost you in both principle and interest. If this document is not offered, consider shopping at another dealership before finalizing the deal.
Ask The Right Questions
After reading the Truth in Lending Disclosure, there still may be some lingering questions. This is a good thing, as it shows that a borrower is actively seeking a full understanding of the financing agreement. Borrowers who are better informed at the beginning are less likely to miss payments or default on a loan. Knowing this, lenders like to have an inquisitive borrower.
What questions should you be asking? Here are a few of the most important ones to ask so that you are fully prepared to handle financing the car:
- What is the exact price I am paying? Have the dealership lay out the exact total for the car, including all fees and costs. Make them total it down to the last penny. There will be no surprises this way.
- What is the real interest rate? Don’t settle for knowing the interest rate that originally was proposed. Ask for the annual percentage rate (APR) for a better understanding of the amount in interest to be paid each year. The lender should also be able to show you how much interest you are paying on the amount you are financing.
- Can I pay the loan off early without penalty? It is typically permissible for a borrower to pay off a car loan early, but not all loans allow it without penalty. Be sure to acquire this information, as well as knowledge of any other hidden penalties that there might be in the contract.
Just like you wouldn’t purchase a vehicle without first looking at it, don’t sign an auto loan without first understanding what you are paying and for how long.