Protect Your Pockets Series
Car Financing Tips
(originally published August 2009)
The “Cash for Clunkers” program may be over, but many Hoosiers are still shopping for a new car. This time of year many dealers traditionally advertise sales as they attempt to clear inventory and make way on their lots for newer models. Whether you’re replacing one car with another or buying for the first time, purchasing a car is an investment. And like other investments, it’s important to fully research your options and make sure your finances are on track before entering into a contract.
Determine Your Budget
First, examine your monthly budget and determine how much you can realistically afford to spend on car payments. Don’t forget to factor in the cost of car insurance. Keep that number in mind when looking for a car and remember to match the car to your budget, not the other way around. Stay true to your maximum price and don’t feel pressured to purchase a car that is more than you can afford. Once you’ve found a car you’re interested in, make sure you’re getting a fair deal by using resources like Kelley Blue Book, Edmunds, or Auto List to assess the value of the car.
Secure a Loan
The average buyer cannot pay the full price of a car up front, so they seek help in the form of a loan, either through a bank or a dealership. In general, banks offer lower interest rates, but make sure you explore all options and read the fine print.
Cash Back or Zero Percent Financing
Many dealers will advertise promotions such as cash back or zero percent financing to help offset the costs of buying a car. Not every car buyer qualifies for these incentives, but those that do should consider which is best for their financial situation. For example, if your budget needs temporary relief, the cash rebates can be great. However, zero percent financing can sometimes save you more in the long run. For interest rates above zero percent, calculate how much total interest you will pay out over the length of the loan and compare it to the cash back amount to decide which is a better deal.
Obtaining the Car Title
Another important step in the car buying process is making sure you obtain the car title, which establishes ownership. After the purchase, you have 21 days to get the title from the dealer. If the dealer fails to give you the title in that time, you can send written notice to the dealer demanding they either give you the title or reverse the sale within the next 10 days. If the dealer still fails to produce the title, you can file a complaint with my Dealer Services Division, which regulates Indiana car dealers, by calling 317-234-7190 or by visiting www.in.gov/sos/dealer. You can also contact the Dealer Services Division to make sure the dealership is valid and licensed with my office.
Keep in mind that if you finance your purchase through the dealership or a bank, the lender will retain the car title until you fulfill the obligations of the loan. Once you have paid off the loan, the car title should be released to you.
Whether you’re buying your first car, trading in an older one or opting to lease, it’s important to treat the purchase of your car like any other investment. Know your budget, do your research and never feel pressured.
- Learn more about the Dealer Services Division
- Learn more about Budgeting 101