Before You Finance Your Next Car, Ask These 5 Questions

Buying a car should be exciting. But somewhere between finding the right vehicle, negotiating the price, discussing your trade and sitting across from someone with a stack of paperwork, things can get complicated quickly.

Suddenly, you’re not just buying a car. You’re choosing a lender, an interest rate, a loan term, GAP coverage, an extended warranty and probably answering a dozen other questions while you’re ready to grab the keys and head home.

That’s why some of the most important decisions about your next car should happen before you ever walk onto the lot.

And if you’ve already bought the car? Keep reading. You may still have options.

1. How much car can I comfortably afford?

There’s an important difference between what you can finance and what comfortably fits your budget.

It’s easy to focus on the monthly payment. But a car also means insurance, fuel, maintenance, registration and repairs. Stretching the loan over a longer term may make the payment look better today while potentially increasing how much you pay overall.

Before you start shopping, look at the entire cost and decide what you’re comfortable spending.

That gives you something incredibly valuable when you walk onto the lot: a limit you chose before falling in love with the car.

2. Should I get pre-approved before I shop?

In many cases, yes.

Getting pre-approved through Old Ocean Federal Credit Union before you start shopping lets you know approximately how much you can borrow and what your financing may look like.

More importantly, it separates two decisions that are often bundled together at the dealership: buying the car and financing the car.

When you already have financing lined up, you can focus your attention on the vehicle and its price instead of trying to evaluate the car, the payment, the interest rate and the financing offer all at once.

A pre-approval isn’t about making the dealership the bad guy. It’s about making sure you’re prepared.

3. Am I negotiating the price of the car or the payment?

Here’s where car buying can get tricky.

A dealer can often make a monthly payment fit your budget by changing the loan term, down payment or other pieces of the transaction. A lower monthly payment doesn’t necessarily mean you’re getting a better deal.

Before saying yes, look beyond the payment.

What is the actual price of the vehicle? What’s the interest rate? How many months will you make payments? How much are you financing after your down payment or trade-in? And what will you have paid by the time the loan is finished?

The monthly payment matters. It just shouldn’t be the only number that matters.

4. Do I need to buy GAP and a warranty at the dealership?

GAP coverage and vehicle protection products can be valuable. But you don’t necessarily have to buy them from the dealership.

GAP is designed to help cover the difference between what you owe on your loan and what your insurance pays if the vehicle is totaled or stolen, subject to the terms of the coverage.

An extended warranty or vehicle service contract can also provide protection against certain repair expenses.

Before adding either one to your financing, ask three simple questions:

What does it cover? What does it cost? And do I have another option?

Old Ocean may offer similar protection at a different cost. Taking a few minutes to compare before signing could make a meaningful difference.

And remember: when these products are rolled into your auto loan, you may also be financing their cost.

5. What if I already bought the car?

Maybe you’re reading all of this and thinking, Well, this would have been helpful two months ago.

That’s okay.

Buying the car doesn’t necessarily mean you’re stuck with the financing you chose at the dealership.

It may be worth checking whether refinancing your existing auto loan could lower your interest rate, reduce your monthly payment, change the length of your loan or otherwise improve your situation. Whether refinancing makes sense depends on your current loan, your credit, the vehicle and the new terms available.

It’s also worth looking at what you paid for GAP coverage or a vehicle service contract. Depending on the products you purchased and their cancellation terms, there may be alternatives worth exploring.

The important thing is not to assume that because the paperwork is signed, there’s nothing left to consider.

A little homework can go a long way

A vehicle is one of the largest purchases most of us make outside of buying a home. Spending 20 or 30 minutes getting your finances in order before spending hours shopping for a car is time well spent.

Know your budget. Check your credit. Get pre-approved. Understand the total cost. Compare your options.

And if you’ve already bought the car, there’s no harm in taking another look at the financing.

At Old Ocean Federal Credit Union, we’re happy to help you look at the numbers before you shop or after you’ve driven off the lot. Maybe what you already have is a great deal. If so, we’ll tell you.

But if there’s an opportunity to make that car payment a little easier on your budget, that’s worth a conversation.

The best time to ask questions about your auto financing is before you buy.

The second-best time is now.