Must-Read Tips on How Not to Let Your Car Loan Kill Your Finances

By Raven Stewart / Posted: Jun 21, 2019 / 0 Comments / Posted in Loan Tips

How to Repay Your Car Loan Faster
How to Repay Your Car Loan Faster

More and more Americans are struggling to keep up with their car payments. In February 2019, the Federal Reserve Bank of New York reported that more than 7 million people are three or more months behind on their car loans.

That figure might make you think twice about heading to your local dealership for a new vehicle.
But don’t let fear keep you from obtaining a car. Just rely on these tips for making smart auto financing decisions.

At the Dealer: Start Smart

When you head to a car dealership, it’s best to already have a method of financing in mind.

David Haas, CFP , advises, “Financially, the best way to buy a car is to buy it new with cash and keep it for a long time, preferably 10 years or more. You can get the best price, you don’t pay any interest, and you can sell it at any time.”

Of course, this isn’t always feasible for everyone. That’s why many people turn to loans instead.

The dealership can offer you a loan, but it’ll likely be more expensive than other options. This is because dealerships often add in lots of extra fees. What are the alternatives?

Auto Loan Options

Consider contacting the following institutions for an auto loan:

  • Credit unions
  • Banks
  • Online lenders

Credit unions offer great deals, but that doesn’t mean you should skip the other options. You’ll want to take your time and do a bit of research here and compare the APR and duration of each loan.

Research your own credit score as well. A low score can affect your ability to find a fair deal. Consider raising your score before trying to get a loan. This bit of advice applies to all loans, not just auto loans!

Dealership Loan Tips

Going with the dealership’s loan offer, after all? Keep these tips in mind:

  • Stay clear of add-ons. Sometimes dealerships will offer features like window tinting and undercoating. Financial expert Gerri Detweiler has a warning for you: “These features are often overpriced and used as a way to boost the sale price of the car. Plus, it’s been shown that add-ons rarely add long-term value to your car.”
  • Keep an eye on the loan’s duration. When it comes to length, take Haas’ advice: “Don’t get into any deal that lasts over five years (or 60 months). If you do, you are likely to be under water (where you actually owe more than the car is worth) for at least part of the deal.”
  • Take advantage of zero-percent financing options. If you have excellent credit, the dealership might offer you a zero-percent financing option. This means you won’t be paying any interest at all. Sound too good to be true? Usually, the only catch is that the dealer will be less likely to negotiate down on the actual cost of the car.

Negotiating With the Dealer

No matter how you get your loan (or even if you end up paying in cash), negotiating with the dealer is a crucial part of the car-buying process. If you’ve already arranged to get a loan from a different source, it’s easier to focus on negotiating on the sticker price when you’re talking with the dealer.

Here are three negotiating tips:

  • Go on a Monday. Dealerships get a lot of business on weekends, meaning they have less incentive to give you a good deal. Show up early in the week, when business is slow for the dealer.
  • Go at the end of the month. This is when most dealers are trying to get a monthly bonus by reaching a certain sales quota. If the dealer you meet is focused on that bonus, you might be able to squeeze a better deal out of them.
  • Remember that walking away is always an option. Don’t let fear lead you into a bad deal. Be polite. Be professional. But you don’t have to agree to an offer you’re uncomfortable with.

One final tip for your auto financing – no matter how you go about it: “Many financial experts recommend keeping total car costs below 15% to 20% of your take-home pay. So while your car payment is 10% of your take-home pay, you should plan on spending another 5% on car expenses,” says Philip Reed of NerdWallet.

Can’t Afford My Car Payment: What Are My Options?

If you’ve already agreed to an unaffordable car loan, you can still take steps to improve your situation.

According to Eric Hoffman, spokesman of the non-profit AWARE, “It’s tough to confront that you don’t have enough money, but if you don’t, you can compound it.”

So, here’s how to get out a car loan you can’t afford:

Voluntary surrender

This is when you voluntarily return the car. And it’s one of your worst options. It’s the same as repossession – although you won’t be charged a towing fee. Your credit score will take a hard hit.

Trade in the car

Tell the dealership you’d instead trade your vehicle in for a cheaper model. This demonstrates a level of loyalty to your dealer, and it helps you both avoid the repossession process.


Request an extension to your car loan or ask for lower interest rates. This isn’t always an option – especially if the car’s value is less than what you owe on it.

Sell It or Have Someone Else Take Over

Consider selling the car and then using the funds to pay off the loan. Similarly, you might be able to find someone else who can take over the monthly payments. Of course, they’ll be taking the car, as well. Ask your lender if this is a viable option.

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Eric Hoffman is the spokesman of Americans Well-informed on Automobile Retailing Economics (AWARE). This DC-based organization is dedicated to increasing consumer education.

Philip Reed Photo

Philip Reed (@AutoReed) is an automotive writer at NerdWallet. He’s an automotive expert and author of numerous books.

David Haas Photo

David Haas (Meet David on LinkedIn) is the owner of Cereus Financial Advisors. He has years of experience in helping clients with financial planning and investment management.

Geri Detweiler Photo

Gerri Detweiler (@gerridetweiler) is a credit expert, host of Talk Credit Radio, and author of “Finance Your Own Business: Get On The Financing Fast Track” and “Debt Collection Answers: How to Use Debt Collection Laws to Protect Your Rights.”

Works Cited

1 Investopedia “Buying a Car? Read This Financial Advice First”

2 Organization\Website Name “When your car loan is killing you”

3 Bankrate “Work\Page title” URL

4, Inc. “What to Do if You Can’t Make Your Car Payment”

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