Yes, the monthly payment is important and must fit within your budget, but the interest rate (or "APR") is the more important number! The APR is the “cost of money”. Don’t allow the dealership to focus solely on “monthly payment”. They can charge you a higher APR (cost of money), but extend the payments from 60 to 72 months. While this may lower your monthly payments, you will pay considerably more for your car over its life.
If the monthly payment will be a strain on your budget, perhaps you should consider a lower priced vehicle or defer your purchase for six months.
Know Your APR!
The “cost of money” or “interest cost” on a car loan can be substantial, some examples follow:
60 months, $10,000 loan
60 months, $20,000 loan
If you have "less than perfect credit" and you plan to have the Dealership arrange your car loan, you may find the following helpful:
Always negotiate the first four items (Purchase Price, Trade-In, Add-ons, and Warranty) prior to providing the dealership a credit application or even discussing your credit. If you cannot agree on the terms of the first four items, why share your personal credit information with them? Why allow them access to your credit report?
Because you have the least amount of information regarding a fair APR, you should negotiate the APR last.
This serves to isolate the financing as a final determining factor. Don’t allow the dealer to charge more for the vehicle or give you less than you deserve on a trade-in just to “buy down” the APR in order to make it sound attractive. Buying down the APR is usually not in your best interests. Buying Down the APR
Financing is a significant profit opportunity for the dealership. As a result, they may be acting in their best interests, not yours. Be fully aware that if you to agree to an APR that is higher than the APR you actually qualify for, the dealership will receive increased fees (profits) from the finance company.
For example, if you qualify for a 6% APR and the dealership can get you to agree to 8%, the dealership will receive additional fees.
Know Your APR!
If the APR sounds high, take time to think about it. You are a “Valued Customer” and the dealership should be willing to give you at least 24 hours to think it over. Ask the dealership to continue searching for a better rate. (While giving you 24 hours to think it over, the dealership may just find a lower APR for you.) In the meantime, you may want to visit another dealership and price out a similar vehicle, again, not discussing financing until the first four items are negotiated to your complete satisfaction. Let the dealerships know that you are shopping but do not provide them any details as to what the competition is offering. It should be none of their concern. You simply want their “best offer”.
Although the higher APR may mean only an extra $20 a month, over 60 months this is an additional $1,200.
Be patient. If you don’t like the terms, thank them for their time, and leave. If you change your mind, you can always go back tomorrow and resume any discussions. The dealership should be pleased to see you return. The price seldom goes up on a return visit.