Shopping Around for Car Loans Can Boost Buying Power in '05

(ARA) - More than 17 million new vehicle sales are forecasted in the U.S. in 2005, according to Automotive News. And while most consumers know they should comparison shop for vehicle features and purchase price, many will overlook one of the most important parts of their purchase: their auto loan.

"Picking out your new car can be an exciting and emotional experience, but consumers should remember that their car loan is probably the single-biggest factor in determining the overall value of their purchase," says Brian Reed, vice president of Capital One Auto Finance. "It really pays to shop around for your loan the same way you do for the vehicle itself."

Failing to pay close enough attention to the terms of your loan can be a costly oversight. For example, a consumer who obtains a $20,000, 60-month new car loan with a 7-percent APR will pay $1,115 more over the life of the loan, compared to the same loan secured at a 5-percent APR.

"Many consumers don't realize it, but they have more choices than ever today when it comes to securing their car loan," Reed says. "The Internet has reinvented the way people finance their cars. You can now go online to comparison shop for interest rates, and even secure your own loan before you arrive at the dealership. It has tipped the balance of power in favor of informed consumers."

By educating themselves before shopping and mapping out a game plan, consumers can gain the upper hand when negotiating their vehicle loan. To help put consumers on the road toward a smart financing deal, Capital One Auto Finance offers the following tips:

* Verify your credit rating.

Order a copy of your credit report to ensure it's accurate and in the best shape possible before applying for a loan. Credit score plays an important role in determining the interest rate you'll receive. Make sure your lines of credit are in good standing and be sure to correct any errors promptly. You can order a credit report from one of the three major credit reporting bureaus: Equifax, Experian or TransUnion.

* Comparison shop for loans.

Many people know they can get a car loan from the dealer's finance department -- but it pays to research other options. For example, Internet auto lenders such as Capital One Auto Finance provide a combination of low rates, convenient application process and fast response. Those approved by Capital One Auto Finance receive a no-obligation Blank Check, which they can use like a personal check at the dealership. Whether you choose an online lender, bank or credit union, be sure to comparison shop for interest rates first, so you know you're getting a competitive rate.

* Arrive with financing in your pocket.

Having approved, no-obligation financing in hand gives you a competitive advantage when you go to buy your car. That's because you know your interest rate and monthly payment in advance, which gives you an idea of the price range of cars you can afford. This approach also lets you buy with the power and flexibility of a cash buyer.

* Approach your purchase as three separate transactions.

Buying a car usually involves three different transactions and it's best to treat each of them separately; 1) financing; 2) trade-in; and 3) vehicle purchase. This strategy will help isolate each act, keeping them clear and simple, while maximizing your negotiating opportunities.

* Weigh your purchase incentive options.

Many auto manufacturers will offer a choice between a cash rebate or a discounted financing rate as a purchase incentive, but usually not both. Even if you're among the minority who qualifies for a 0-percent rate, don't assume it provides the most savings. Sometimes you'll come out ahead by applying the rebate to the purchase price and using your own low interest rate loan. Bring a calculator or laptop to the dealer to see which option is best for you.

* Match length of loan to expected length of ownership.

Select your loan term based on how long you plan to own the vehicle. Buyers who take out longer-term loans to keep their monthly payment low can find themselves "upside down" on their loan -- that is, owing more money on the car than it's worth in trade when it's time for a new car.

* Take your time reviewing the contract.

Don't put pen to paper until you know the following: your interest rate, monthly payment, amount you are financing, the length of your loan and your trade-in value. Also, make sure unwanted after-market "extras" haven't been added to the deal.