Don’t Take Out an Auto Loan Until You’ve Made These 8 Financial Moves

Thinking of buying a new car? Money experts say there are a few things you’ll want to do for your finances before you commit to an auto loan.

GOBankingRates spoke to Richard Brauns, the senior partner and co-founder at JKR Advertising & Marketing. JKR is one of the largest automotive advertising agencies, and Braun had a lot to say on the steps you should be taking before you apply for an auto loan.

If you’re already struggling to make ends meet every month, adding an auto loan on top of that won’t make things any easier.

Brauns said it’s better to actually have some extra money so you can make a big down payment on a vehicle. “Being able to make a substantial down payment will have a positive effect on your monthly payments; and the more you put down, the greater chance you’ll have for approval.”

Brauns said it’s best to look at your budget before you head down to the dealership to assess what a doable monthly payment would look like. “This will help you decide the length of financing and the rough target price of the type of car you should seek.”

Brauns said that you’ll be paying on the amount of the car, but not to forget that you’ll also be paying sales tax, dealer fees and clerical fees.

Getting ahold of your credit score is pretty easy.

“If you don’t know it, most banks have the ability to show you your score without negatively affecting it,” Brauns said. “Things such as late payments, credit card debt, home loans, other car loans, child support, previous bankruptcies and the like can have a significant effect on one’s score — so it’s good to know what it is ahead of time. Obviously, the better one’s credit is, the lower the payments would be.”

If your credit score is low, it’s best to work on bringing it up before you get a car so your monthly payments won’t be as high. You’ll also be able to qualify for more loans with a better credit score. Of course, don’t go for a fix that seems too good to be true.

“If the car shopper knows they have a credit problem, they should look for ways to clean it up,” Brauns said. “With that said, do not sign up for any program seeking upfront money or some other kind of obligation that makes you contractually bound to them for credit restructuring.”

If you are trading in an old car, check Kelley Blue Book and other value tools to get an approximate range of what your car is worth, so you know about how much you can expect to get and avoid being lowballed.

“If it isn’t completely paid off, you should also know the payoff ahead of time,” Brauns said.

Sometimes, certain cars will have incentives for buying them, which could save you a lot of money.

Brauns said there are usually more incentives available for new and certified pre-owned vehicles. For example, lots of electric vehicles offer buyers cash incentives with purchase.

Buying something worth as much as a car can be really stressful, and sometimes, your emotions can get the best of you.

Brauns said it’s best to try and reduce the possibility for that as much as possible. “If you let your emotions get the best of you, you’ll likely end up paying more than you otherwise would have. Stay calm; don’t rush and stay within the budget you’ve set for yourself!”

It might be advisable to bring a person you trust who’s bought a car recently and feels confident in the field. This way, you have an unbiased third party that can make sure you don’t get taken advantage of or pay more than you had budgeted for.

You might take a hard look at your finances and realize an auto loan isn’t the right move for you. If you’re really looking to reduce debt, Brauns said to buy a car with cash.

“If the end goal is reducing debt, a good option is to save for a while and buy a vehicle for cash. Look for a one-owner, higher mileage newer car or, on the alternative, an older low-mileage car,” he said.

Brauns added that you’ll want to seek out cars with a reliable driver history. He also said to stick to trusted brands like Honda, Toyota, Hyundai and Kia.