To Drive a Better Deal - Get Financing Before Shopping for a Car

BURNSVILLE, Minn., March 10 -- 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 Minnesota/Iowa.

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, making car buyers fixated with getting a low monthly payment," said Jeff Ogden, AAA Minnesota/Iowa president. "Regardless of what the monthly payment is, what they are probably doing is spending too much for their cars."

That's because consumers 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.

"The Internet has reinvented the way people finance their cars," Ogden said. "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 provide the dealer a profit. 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 length 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 www.aaa.com, click on Financial Services, and then Auto Financing. Or, send a self-addressed, stamped envelope to AAA, "Getting a Smart Deal on a Vehicle Loan," 1000 AAA Drive, Lake Mary, FL 32746.

AAA Minnesota/Iowa, which includes more than 700,000 members, offers automotive, travel, insurance and financial services. It is part of The Auto Club Group (ACG), the largest affiliation of AAA clubs in the Midwest, with 4.1 million members in eight states. ACG clubs belong to the national AAA federation, a not-for-profit organization, with more than 45 million members in the United States and Canada.