Know Before You Go: What To Look For Before Heading to the Car Dealership

Shopping for a car is an exciting process. Researching the many cars available to you, comparing features and even taking them on test drives can all be fun. But when it comes time to deal with that price tag, reality sets in.

Cars aren’t cheap and even if you decide to go the economical route and buy a reliable used car, you will still likely need a loan to finance the purchase. Though they are a form of debt, auto loans can actually be beneficial. Making timely payments every month can help boost your credit score and make it easier to get affordable loans for other things in the future.

However, you need to be careful with loans, too. While the right behavior can help your score, too much of the wrong actions can take a great toll on it.

Know how much you can afford

The first thing you need to do when seeking out a car loan is have a good idea of how much you can afford. This goes beyond knowing your monthly budget; you should also be aware of what your credit score is and what rates you qualify for. If you don’t, chances are a lender may convince you that you don’t qualify for lower rates.

Bankrate contributor Russ Heaps suggested getting pre-approved for an auto loan before heading to the dealership. This will give you a clear idea of what your credit score is, what rates you qualify for and how much car you can afford. It’s important to note that just because you get pre-approved at one bank or credit union, doesn’t mean you have to take a loan from them. It just means you have a good idea of what offers are unfair and which you would be smart to take.

Once you determine how much you can afford to pay each month, it’s important to guard that information. Don’t clue the dealer into this knowledge, because that can work against you. If the salesperson knows how much you can afford per month, he or she can sneak extra costs into the payment.

The best way to negotiate a used car sale is to discuss each cost separately. The separate costs include the price of the car you’ll purchase, the value of your trade-in and the financing.

Don’t fall for the add-ons

Time reported that car dealers have noticed profit losses since car buyers have begun researching prices online before shopping. Many salespeople have tried to make up for this loss with items added on, such as paint sealant, gap insurance and extended warranties.

“About 50 percent of a dealer’s profits come from the finance office,” Chris Kukla, the senior counsel for government affairs at the Center for Responsible Lending, told Time.

While some of these services and features might be a good idea, buying them along with the car will just add to the cost of your loan. They may not be too expensive upfront, but you will pay more in interest over time. Instead, simply make the purchase, then seek out these other things elsewhere or later on.

Don’t roll over without careful consideration

If you get to a point in paying off your loan where the amount you still owe is more than the car is worth, you are considered “upside down.” This isn’t a great position to be in, but there are ways to work through it.

One way people address this problem is by rolling the negative equity into a new car loan. This is rarely a good idea, according to AOL Finance. What this means is, the remaining balance of your loan will be added to another loan, which you will use to buy another car. When this happens, you are paying off two cars at once. If you are upside down on your loan, there is only a slim chance you can afford this.

Instead of combining the remainder of your old loan with a new one, Kelley Blue Book suggested keeping the car until the value matches the amount remaining on your loan. Another option is to refinance your auto loan with a shorter term.

Loans are great tools when you need to purchase a car but you don’t have the savings to pay in cash. However, it’s important to be smart about your borrowing practices. You wouldn’t want this loan to affect your chances of getting a good loan in the future.