Financing a new or used car? - The top 5 questions you should ask

Financing a new or used car? - The top 5 questions you should ask
![There's only two options, new or used.](’s only two options, new or used.
**Financing a new or used car? – The top 5 questions you should ask**

Not sure whether you should go for a new car or save some bucks with a pre-owned model? Unsure what will affect your loan rate?

Here are the top five questions savvy car shoppers should ask, with answers from Tara Graff, director of marketing for Spire Federal Credit Union in Minnesota’s Twin Cities.

1. What affects the interest rate?

Many different factors, including your credit score, the age of the vehicle you want to buy, the amount of your down payment (if any) and the term of loan all play a role in determining the interest rate. While financing for new cars generally offers lower rates and longer terms, it is still very dependent on the buyer’s situation.

2. How will my credit report affect the loan terms?

For the best possible rates and most generous terms available from a credit union, bank or dealership, you want a top credit score. Lower credit scores equal higher rates and may even require a substantial down payment to qualify for the loan. Late payments and maxed out credit cards are two factors most destructive to your score.

Before you shop, check your credit report for free at to make sure there are no errors in your credit file.

3. Is “0% interest” or “no money down” always the best deal?

If you’re buying a brand new car, special incentive financing can make a difference. The ultra-low rates (0%, 0.9% etc…) offered by auto manufacturers are an incentive to buy their model; they do not make any money from collecting interest like other financing sources.

But you might do better with a low interest, short-term loan and a large cash rebate, as this example demonstrates:

Vehicle price: $30,000

  • Option #1        No rebate and 0% financing = $30,000 total purchase cost
  • Option #2        $30,000 – $3,000 rebate = $27,000

48 month loan at 2.09% interest = $1,168 in interest

$27,000 + $1,168 = $28,168 total purchase cost

Our Loan Calculator can help you estimate your monthly payment.

4. Should I go with dealer financing or find my own loan source?

While both sources can be good deals, you should research a variety of financing options and get a pre-approval (or two!) so you have real interest rates and loan terms to compare to the offers you’ll receive at a dealership. Tip: Don’t forget to also compare the Extended Warranty and GAP (guaranteed asset protection) options offered by the dealer against the ones offered by the bank or credit union.

5. What else should buyers know when financing the purchase of a new or new-to-you vehicle?


Take your time. It can be easy to get caught up in the excitement of getting that new car home, but rushing through and signing on with the first source that approves your financing could cost you hundreds or even thousands of extra dollars.

The more you know, the better you can navigate the car-buying experience. For more information, visit the “Understanding Vehicle Financing” section on the Federal Trade Commission web site.

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