When you are buying your next car, you will probably need to be willing to negotiate financing for the vehicle. Several factors affect how good a deal you get during these negotiations, and knowing these factors ahead of time can help you better prepare. For the most part, these factors boil down to the amount of risk the lender is being asked to take.
Make, Model and Year
It is in the lender’s best interest to go into the negotiation with the possibility in mind that you might fail to pay off your car successfully. In such situations, how much lenders lose on defaulted car loans depends mostly on how much the car would be worth after it is repossessed. If the car is likely to sell easily or for more money, the risk for the lender is lower. That is why you are more likely to be offered better interest on a newer, more popular car.
Your down payment lowers the amount you have to borrow. The less money you borrow, the less risky it is to loan money to you. If you can make a sizeable down payment on the car before you ever drive it off the lot, you will probably have more bargaining power.
The biggest risk factor for potential lenders, however, is you. A low credit score is an indication that you have not been very successful in paying off debts before. A high debt-to-income ratio tells them that you have a lot of other payments you are responsible for, increasing the likelihood that this new debt might fall in the cracks. If you are a credit risk, lenders are going to want to negotiate terms that protect them, which means they may not be the best terms for you.
Understanding the risk factors that affect your car loan can help you get a better deal. If you go to the dealership prepared to demonstrate your credit worthiness, you are more likely to walk out satisfied.