How to buy a car - even now
Loans are tougher to get, but if you've got good credit car dealers are hungry for your business.
NEW YORK (CNNMoney.com) -- Auto dealers are hungry for customers: Worried consumers are putting off buying big-ticket items, and buyers on the market are finding it harder to get a loan. So if your credit is solid, now is a great time to say, Let's make a deal.
"What you may not realize is that there's equal desperation on the other side," said Phil Reed, consumer advice editor at the automotive Web site Edmunds.com.
With few customers buying, there are deals to be had. And with inventories jamming dealer lots, you may be surprised to find that you can even find super-low interest rates.
"The discounts are almost unprecedented," said Reed.
Toyota (TM) recently announced a nationwide 0% financing incentive on many of its most popular models. General Motors (GM, Fortune 500) wrapped up its "Employee Pricing" incentive at the end of last month, but it is now offering 0% financing and other incentives on many models.
But unless you're prepared to pay cash for your car, you need to make sure you qualify for a loan.
You should do it at least once a year, anyway. Ask for a credit report from at least one of the major credit reporting agencies (Equifax, Experian or TransUnion) and read it carefully. If there is anything negative, make sure that it's at least accurate. If not, contest it immediately.
"If you're credit is good, you shouldn't have any problem," said Reed.
How much can you afford?
Web sites like Cars.com, Edmunds.com and AOL Autos have calculators that show how much you could spend on a car while still keeping monthly payments affordable over a given loan term. Look at loans of 48 months or less.
The danger of not doing that kind homework is that a salesman could blind you with attractive-sounding monthly payments. But those payments might be stretched out over a long term, like 72 months or more.
Long loans that stretch beyond four years, lengthen the period of time during which you'll owe more on the car than the car itself is worth. That can lead to financing problems later on if you want to replace it with something else. (This kind of ultra-long financing will probably become less common as creditors become more conservative.)
Not for a car, but for a car loan. "Always check with a different financing institution before you go into a dealer," suggested David Thomas, senior editor at Cars.com.
Start by going to your local credit union or applying at your own bank. Sites like CapltalOne.com will pre-approve you for a car loan up to a certain amount and send you a check you can take to the dealership. The loan doesn't actually kick in until you use the check.
Getting credit lined up from the get-go takes care of a few things: It establishes that your credit score is good enough to get financing. And it lets car dealers know they're going to have to work to get your auto financing business.
In the end, there's a very good chance you'll never need the loan you just arranged. Car dealers working with automakers' "captive finance" companies - Toyota Motor Credit for Toyota dealers or Ford Motor Credit for Ford (F, Fortune 500) dealers, for example - can almost always offer the best rates.
That's because they're in the business of selling cars as well as financing so they have a strong incentive to help you buy not just any car - but their car.
Car dealers often make little money on the actual sale of the new car. The money they get for arranging financing has become an important part of their revenue stream. "A lot of dealers still live on their financing," said Thomas.
The biggest factor in how much you'll pay for financing is how much you borrow. To minimize the principal, take advantage of all the discounts out there, as well as the dealers' willingness to negotiate, to get the best price you can.