To Drive A Better Deal Get Financing Before Shopping For Car, AAA Says

Orlando, Fla. – 3/9/2004

Consumers could save millions of dollars on financing a new car if they shopped for a loan before ever stepping into a dealer showroom, according to AAA.

New vehicle sales topped the 16 million mark again in 2003 — for the fifth straight year — and are projected to reach 16.7 million this year, according to AAA. But the surprising news is that last year banks financed on average 101 percent of a new vehicle’s cost.

“Personal debt rose nearly 11 percent in 2003,” said Scott Denman, managing director, AAA Financial Services, “making car buyers fixated on getting a low monthly payment. Whether they realize it or not, many are probably spending too much for their cars, regardless of what the monthly payment is.”

That’s because consumers, determined to drive a new vehicle, are trading in cars that are worth less than what is owed on the current loan. In order to afford a new vehicle, buyers extend the length of the new loan. The average car loan today is 63 months, compared with 48 months just five years ago.

By shopping for a vehicle with pre-arranged financing consumers increase their negotiating power, according to AAA.

“Whether or not a consumer makes a costly financing mistake depends on how much homework the consumer does before they start shopping for a vehicle,” said Denman. “By educating themselves first, and mapping out a game plan, consumers can gain the upper hand when negotiating their loan.”

One of the most important things that buyers overlook is that they should keep the financing negotiation separate from the vehicle purchase or trade-in discussion.

“The Internet has reinvented the way people finance their cars,” said Denman. “It’s changed the balance to favor informed consumers. Doing some research before visiting the showroom is a must, and with the Internet it’s easier than ever.”

To help consumers drive a better deal, AAA offers these tips on what to do before you start shopping for a car.

Check your credit rating. Credit score plays an important role in determining the interest rate you’ll receive. Get a copy of your credit report, correct any errors promptly and identify open lines of credit you can close.

Explore financing options and compare rates. Many people know they can get a car loan from the dealer’s finance department — but the rate is usually marked up to pay for this convenience. Before going to the dealer, use the Internet to research a combination of low rates, convenient application process and fast response so you know you’re getting a competitive rate.

Arrive with financing in hand. Having approved, no-obligation financing in your pocket gives you a competitive advantage when you’re ready to buy. That’s because you know your interest rate and monthly payment in advance, which lets you shop with the power and flexibility of a cash buyer.

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 zero percent rate, it may not provide 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.

Match the term of the loan to the 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 on the car than it’s worth in trade.

Take your time reviewing the contract. Don’t put pen to paper until you know 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.

For more information on vehicle financing, visit or send a self-addressed, stamped envelope to AAA, “Getting a Smart Deal on a Vehicle Loan,” 1000 AAA Drive, MS 35, Lake Mary, FL 32746.

As North America’s largest motoring and leisure travel organization, AAA provides more than 46 million members with travel, insurance, financial and automotive-related services. Since its founding in 1902, the not-for-profit, fully tax-paying AAA has been a leader and advocate for the safety and security of all travelers.

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