How to Finance an Auto Purchase

When you walk into a dealership, you won’t be there long before a salesperson asks how you intend to pay for your new car.

When the dealer starts in, just explain that you intend to pay in cash. Saying you’ll be paying in cash doesn’t mean you’re going to open up a briefcase with bricks of money inside, it just means that you’re not interested in dealer or manufacturer financing.

In some cases (if you have perfect credit if the car is about to be replaced by a newer model) dealer-sponsored financing might be a good deal, but most of the time it isn’t. You can usually find better deals on car loans at credit unions and banks.

Telling the dealer that you’re not interested in their financing takes away an opportunity for the dealer to pad the deal with an extra profit. Dealers make money on charging you, so they have ways of slipping various extra fees and charges into your financing arrangement. Forgoing dealer financing also allows you to focus on the features and purchase price of the car you want — a far more important and useful task than focusing on the monthly payment figure.

After declining financing, your next task is negotiating the purchase price of the car. Some survival tips:

Resist the temptation to lease
Leasing is basically an extended car rental. When you lease a car, you must return it at the end of the lease or buy it from the dealer at a predetermined price — usually higher than what you’d pay for a similar used car. When you take a loan out to buy a car, you pay down the loan and then the car is yours, free and clear. The only payments you’ll have to make after that are for gas, repairs, and insurance.

Lots of people lease. Smart, respectable people lease. It’s not a terrible thing to do, but it’s not the best way to keep a car because you’re always making payments. Lease a car for three years and, when the term expires, you need to look for a new lease or shell out thousands to purchase the car you’ve been driving.

Consider factory certified pre-owned cars
 “Certified pre-owned” is another term for “used.” But these cars do come with extra assurances about the car’s condition. Going pre-owned can be a really smart move because most cars lose 18% of their value in their first year. A certified pre-owned car is one that has been inspected and fixed before it goes on the market, and comes with a manufacturer-backed warranty like new cars do.

Size up your future car loan
 Once you decide you want a new car, the first thing you should do is figure out how many cars you can afford. Calculate this amount before you go shopping; don’t let a car dealer influence your decision.

Figure out how big a loan you should get. A good rule of thumb: Your monthly car payment should be no more than 20% of your disposable income. That means that after you’ve paid all your debts and living expenses, take one-fifth of what’s left. That’s your maximum monthly auto expense. Ideally, this number should cover not only your car payment but also your insurance and fuel costs.

Decide how long you’ll give yourself to repay your car loan. A monthly payment is, essentially, the amount of your loan, plus interest, divided by the number of months you have to pay back the loan. The more months you have to pay it back, the lower the monthly payment will be. But stretching out a car loan too long—or any loan, for that matter—will ultimately cost you a truckload more in interest payments.

For example, say you take out a $20,000 car loan at 5%. If you borrow the money over four years, your monthly payment will be $460.59. At the end of four years, you’ll have paid $2,108.12 in interest.

If you borrow the money over ten years, your monthly payment will only be $211.12, but at the end of 10 years, you’ll have paid $5,455.72 in interest.

Keep your loan term to five years or less (three is ideal) and you should be in good shape. If the monthly payments are too much even for five years, the car you’re looking to buy is probably too expensive.

Consider all pools of money
Should you sell investments to pay for the car instead of borrowing at 7%? That’s a tough call; usually, we’d say no. Do not spend any of your tax-sheltered retirement savings (IRAs, 401(k)s), as you’ll pay through the nose in penalties and taxes and rob from your future. As for taxable investments, consider whether cashing out would have tax implications (you’ll pay 15% in capital gains for investments held longer than one year; investments held less than a year are taxed at your ordinary income-tax rate) or whether you may need that money for something else over the next two to three years.

Should you take out a home equity loan to pay for a car, since the interest of those loans are tax-deductible?

Many people think home loans are the perfect way to finance the purchase of a new car. But the length of the term for a home loan — most require payments over at least 10 years, with penalties for early repayment — will send your total costs through the roof, even after the tax savings. Borrow for no more than five years, lease (if you must) for no more than three. If you’re considering a home-equity line of credit to pay for your car, remember that most HELOCs have a variable interest rate, so it’s possible your payments will rise over time.

How to Find the Best Auto Loan
You’re going to show up at the dealer with your own loan, but where should that loan come from?

Begin by getting a sense of the prevailing rate for a new-car loan. Focus on is the APR or annual percentage rate offered by each lender. The APR is the annual cost of the loan or interest rate. With this number, you can cross-compare loans from one lender to another, so long as the duration of the loans is the same.

You’ll probably get the best deal at a credit union— a members-only, nonprofit bank that can offer lower-cost loans than a traditional bank can. But check out rates at traditional banks and online-only car lenders such as Livauto Auto Loans.

Don’t be distracted by dealerships offering rebates or zero-percent financing if you obtain your loan through them. “Zero-percent financing” means you are not charged any interest on the loan. So if you were buying a car that cost $24,000 and you had a 48-month car loan, your monthly payment would be $500, without any added interest. A rebate is a money taken off the price of the car. Rebates are also called cash-back deals.

Here’s the thing about those offers: The money you save via interest and rebates is probably coming from somewhere. If you qualify for 0% interest (and most people don’t, as it’s given only to people with near-perfect credit), your dealer won’t budge on the sticker price. If you take the rebate, you won’t get a rock-bottom or 0% interest deal.

That’s why splitting up the financing and purchasing of your car is a good idea: First, you can shop around for the best credit-union car loan, and then you go to the dealer and focus on negotiating the purchase price of the car. Bundling the transactions can lead to lots of stress and added expense — you may be so focused on financing costs that you the punt on the purchase price — to keep them separate.

If you do choose dealer financing, be extra vigilant about what you agree to, and what you’re signing—it’s not uncommon for dealers to add in various unnecessary fees (rustproofing, extended warranty) that fatten their bottom line. Question everything that wasn’t explicitly discussed during negotiation, and don’t be afraid to walk away.

There are some easy ways to catch a break with your dealer when negotiating the price of your car. Timing can be everything:

Shop early in the week
 Weekends are prime time for dealers. But if you show up on a Monday, a salesman may be more motivated to cut a deal because business will be slow for the next few days.

Shop at the end of the month
 Car dealers get monthly bonuses if they move enough metal. If you show up on the 30th and your salesperson is two cars short of a bonus, he or she may cut you a better deal so to make numbers.

Shop for a car that’s about to be replaced/discontinued
Pretty simple logic here: Things that are about to be considered “old” sell for less. If you’re looking at a 2008 Honda Accord and the 2009s are about to arrive at the dealer, you usually can get a bargain. If the 2009 model is completely new and different from 2008, you’ll save even more. (Who wants to be seen driving the old-looking model? Smart, frugal people, that’s who.) And if Honda decides the Accord isn’t selling much anymore and kills it after the current model year? (OK, fat chance, but this is just an example.) Untold riches await. As do potential maintenance headaches — remember, some cars are unpopular for good reason.


Car titles are one of the basic parts of vehicle ownership, and knowing a little about them, and what details to look out for, will help you when it comes time to buy, sell or transfer ownership of a car.

Starting off with an explanation of what a car title is, this article tells you what information it contains, how it may affect your buying decision, how to transfer a title, and also covers different types of car titles you may come across. Whether you’re looking at the paper title while checking out a vehicle in person or viewing its details within an online vehicle history report, titles provide valuable information for your car-buying process.

What is a car title?

A car title is a document establishing the legal owner of a vehicle, whether a person or business, that’s typically issued by a state department of motor vehicles (DMV). It’s also referred to as a vehicle title, certificate of title or pink slip (as car titles in California were once that color).

Important information found on titles

Lender as lienholder, and the registered owner
In many cases, a buyer will use an auto loan to purchase a vehicle. If so, the lender will be listed on the car title as the lienholder; essentially the legal owner of the vehicle. The buyer will be listed as the registered owner along with their address. Once the buyer has repaid the loan, the lender will release the lien. The title and legal ownership are then transferred to the buyer.

If you’re buying a used car, consider checking to see if there’s an outstanding lien on the vehicle, as that would likely spell trouble. Purchasing a car with a lien may mean you’re obliged to pay off the balance on the loan or face the possibility of repossession.

Vehicle identification
Car titles also contain information to identify the vehicle and, while the exact details may vary by state, you’ll generally find at least the make, model, year of production and vehicle identification number (VIN). The gross vehicle weight, motive power (whether the vehicle is gas, diesel, electric or hybrid-powered), license plate number and the mileage of the car at the time of sale are typically listed, too.

It’s worth paying particular attention to the VIN and mileage when you’re buying a used vehicle. The VIN on the title should match the number found in the car, otherwise, another warning sign has been raised because the vehicle isn’t what it seems on paper. Likewise, the mileage on the title should be less than the mileage you see on the car odometer. If not, the odometer reading may have been manipulated.

Transferring a title

On the back of a car title document is a declaration that, once signed, enables ownership of the vehicle to be transferred from one party to another. When the current owner has signed it, the buyer can apply for a new title with the DMV in their own name.

Different types of car title and what they mean

Salvage titles
If a vehicle has been severely damaged in an accident or has other significant problems, the insurance company may deem it a total loss. If that’s the case, the DMV will typically issue a “salvage certificate.” The car can’t be driven, sold as roadworthy or registered as it is, so the insurance company will often sell it for repair or parts. The process varies in different states but, if the vehicle is repaired and passes a state safety inspection, the state can issue a new title with a notation that the car has been salvaged or rebuilt.

According to Edmunds, there’s no definitive answer as to whether you should or shouldn’t buy a car with this “salvage title.” Pros may include a lower asking price than a clean-titled car, but cons include the risk of mechanical problems and potential challenges when reselling the vehicle. “It depends on how comfortable you are with buying a car that has a checkered past,” says the car research website.

Flood titles
A “flood title” means the car was damaged by sitting in water deep enough to fill the engine compartment. In the wake of storms, flood-damaged vehicles have been cleaned up and sold out of state without repairs, and potential buyers may not initially know such vehicles are damaged. The Federal Trade Commission (FTC) recommends what to do to find out if a vehicle is flood damaged, including getting a vehicle history report that includes the vehicle’s title status.

Lemon law titles
Under state “lemon” laws, consumers have the right to a replacement vehicle or a refund from the manufacturer if their new car turns out to be faulty (often due to a warranty defect) and cannot be repaired after a certain number of attempts in a certain timeframe. Some of these “lemon buybacks” may subsequently be offered for resale. About 36 states and the District of Columbia require manufacturers and dealers to disclose that the vehicle now for sale was a buyback due to a defect, according to the FTC. In some states, that disclosure means branding the car title, known as a “lemon law title.”

Where to find quality cars with clean titles

If you’re in the market for a new or used car, consider working with a trusted lender like RoadLoans. RoadLoans is the direct-lending platform of Santander Consumer USA and maintains close relationships with a national network of reputable dealers. These dealers are able to show our customers select, high-quality vehicles with clean and clear titles meeting our standards for age, mileage, and financing.

You can apply for a car loan with RoadLoans online in minutes and get an instant decision. If approved, we’ll recommend a local dealer within your loan documents so you can shop for a car with confidence.

Want to buy a vehicle from an individual? We accept applications for private party auto loans, too. If you take this route, RoadLoans requires a vehicle inspection to ensure the car is approved for sale and meets our


Whether you buy from a dealership or from a private seller, all vehicles must come with clean titles and cannot have salvaged, lemon law, flood or frame-damage titles.

More information about buying a car with RoadLoans is available on our website, including details of our process and assistance with applying for a loan in different credit situations, including bad credit.* Visit the blog for topics like how auto loans work, how to lower APR, car loans for first-time buyers and the advantages of preapproved car loans.


10 best car buying tips for 2017

Thinking about buying a car in 2017? Make sure you set aside some time to plan for this major purchase. After a home, a car is typically the second most expensive purchase anyone makes — and settling on a new vehicle is not a decision to make merely over a weekend.

Follow these 10 car-buying tips to make sure you get a car you can afford and will be happy driving for years to come.

1. Determine your budget

While you may have your heart set on a specific car, you won’t be able to take it home unless you can afford it. A good rule of thumb is to spend no more than 25 percent of your monthly household income for all the cars in your household. And this figure should include not only monthly car loan payments but all other vehicle costs, including fuel and car insurance. If you’re not sure how a new car would fit into your monthly expenses, use Bankrate’s home budget calculator to help you determine your monthly bills and necessary savings.

2. Decide: New, certified pre-owned or used? Buy or lease?

Thanks to a large number of lease returns, a wide array of used cars that are about three years old is currently on the market, making buying a used or certified pre-owned (CPO) car more attractive than in recent years. In addition, there are more inexpensive new cars available than ever before, making your choices positively dizzying, regardless of your budget.

You’ll be able to get the most car for your money if you buy used, though you’ll pay a higher interest rate, have a shorter warranty period and won’t know the car’s full history. If you lease, you might get a more upscale car for your dollars, but then you won’t own the car outright and will need to be careful about the lease terms to avoid hefty penalties. A new car for the same amount of money would have fewer features, but you’ll also have a full warranty and pay a lower interest rate, and often you’ll get free maintenance and roadside assistance.

For many, a certified pre-owned car is an ideal compromise, since these vehicles are cheaper than new cars, but they usually have some warranty left and must meet certain criteria to help ensure their reliability and condition.

3. Narrow your choices to a few cars

Start by researching the cars that have caught your eye to see if they fit your budget. Visit automaker websites and independent automotive information sites to assess the features that are important to you, and note MSRPs (manufacturer’s suggested retail prices) and invoice prices. Check local inventory listings to see what is available in your area. Choose cars that would cost at least 5 percent less than your monthly budget to give yourself some room to cover operating costs, including gasoline, insurance, repairs, and maintenance. Print out or electronically save web pages that have pertinent details. Don’t, however, rush off to the dealership for a test drive just yet.

4. Assess your ownership costs

Using your short list of cars, determine if each would fit into your budget by estimating ownership costs. An auto research website such as or Kelley Blue Book’s would provide a general overview of ownership costs for your area, but these numbers will vary depending on your personal situation. For better accuracy, do your own calculation for fuel based on the number of miles you drive annually, and obtain an auto insurance quote on the cars you are considering that would apply to the drivers in your household. Make sure you give the insurance agent the exact model, including trim level, engine and sometimes certain options, to get an accurate quote.

5. Secure financing — before you visit the dealer

Dealers don’t just want to sell you a car, but they want to coordinate the car loan, too. That’s because they typically receive a flat fee or a commission on the auto loans they facilitate, regardless of whether the loan is from the manufacturer or a local lender. So, secure financing from a bank or credit union in advance and compare it with what the dealer offers. Find current interest rates on Bankrate, and check with local lenders, including credit unions, which tend to offer rates that are 1 to 2 percentage points lower, on average, than conventional banks. Many community credit unions are open to anyone living in their area, eliminating the need to work at a certain company or in a specific industry to join. Use to find a credit union you can join.

6. Don’t assume financing at the dealership is the best deal

While you may be drawn to a certain car or brand because you saw an ad for a low-interest rate, it’s of no use unless you qualify. Only about 10 percent of car buyers qualify for the zero percent or low-interest-rate deals automakers offer. Even if you do qualify, you may be better off taking an automaker’s cash rebate and obtaining financing on your own at a bank or credit union. To find your best deal, first, find the best interest rate you can get and then use Bankrate’s Car rebate vs. low-interest calculator.

7. Learn the invoice price

The research you did on independent automotive information websites should have included the invoice price (for new cars) or wholesale price (for used cars), as well as the manufacturer’s suggested retail price (for new cars) or the dealer’s asking price (for used). While invoice pricing on third-party information sites isn’t 100 percent accurate, it is a good indicator of what the dealer paid for the car, and it’s the best place to start your negotiation. Aim to reach an agreement on the sale price that is close to that number before any discounts are applied, and keep in mind that the dealer needs to make at least a few hundred dollars’ profit to cover the operating costs of running the dealership.

8. Research all possible discounts in advance

You’ve probably seen the ads promoting cash-back deals, and these incentives should be deducted after you negotiate the price. In addition, many automakers offer discounts to students, military members and even members of certain credit unions. These discounts can be stacked and can be combined with the cash-back rebates on the model. Check automaker websites for these incentives in their “Current Offers” sections.

9. Take your time with the test drive

When you’ve completed all your research, call the dealerships you want to visit and make appointments for test drives with the internet or fleet manager. You can find the name of the right person at the dealership website. By reaching out, you’re establishing a relationship with someone who might be less likely to try to strong-arm you into a deal if you decide you are ready to buy after the test drive.

Since most car shoppers these days keep their cars for five years or more, take your time with the test drive to make sure you really love the car. Don’t hesitate to ask for more time behind the wheel to ensure you like the driving experience, and spend time in the car while it’s parked to adjust the seats, experiment with the controls and determine whether passengers would be comfortable and your regular cargo would fit well.

10. Use smart negotiating strategies

When you are ready to make a purchase and start discussing a price, keep in mind all the discounts you’ve researched, and — for the moment — forget about trading in your car as part of the deal. You’ll do better if you negotiate the sale price of your new car and the trade-in value of your old car separately. Make sure you have already researched your current car’s value online so you’ll know whether you are being offered a fair price when a trade-in is discussed.

Once you’ve reached an agreement to buy, be prepared to say “no” to all the extras you may be offered. Instead, say “no” and do the research at home for whatever add-ons interest you, and contact the dealership at a later date to negotiate fair prices for those items. When you are presented with a sales or lease contract, go over all of the details carefully, making sure that you aren’t paying any unnecessary dealer fees and that everything you negotiated verbally is spelled out in writing.

Charged up on hybrids? Here are answers to five questions you are likely to have

While hybrid electric vehicle sales make up a small percentage of total vehicle sales in Canada, big incentives and increased competition within this segment have increased sales over the past several years. There are a number of financial and environmental reasons to consider making your next vehicle purchase a hybrid one. To assist you in making this decision we’ve compiled some essential questions you might want to be answered before buying a hybrid.

  1. How does a Hybrid Vehicle Work?

A Hybrid electric vehicle (or HEV) combines the benefits of a conventional internal combustion engine with those of an electric motor. Hybrid vehicles have onboard computers that constantly calculate when to make use of the electric motor, the gas motor, or a combination of the two to achieve maximal fuel efficiency. Most HEVs use the electric motor at low speeds and revert to the gasoline engine at speeds above 30 km/h, or when the electric battery runs low. The gasoline engine is also used in combination with the braking action of the vehicle to recharge the hybrid’s batteries as you drive.

  1. What about Plug-in Hybrids?

A plug-in hybrid differs from a traditional HEV in that it makes exclusive use of the electric motor in normal driving scenarios and makes use of the gasoline engine only to extend vehicle range by recharging the battery when it runs low. As the name suggests, the electric battery is also recharged by connecting it to an external power supply. Plug-in hybrids can achieve even better fuel economy than traditional hybrids, especially in city driving scenarios where the electric motor is the sole power supply. Statistics show that plug-in hybrid vehicles use between 40 to 60 percent less fuel than a conventional gasoline vehicle of the same type.

  1. Why do Hybrids cost more?

In a word: batteries. The material cost of state-of-the-art lithium ion batteries and engineering costs associated to developing hybrid systems significantly increase the cost of producing a hybrid vehicle. These costs are passed on to the consumer and result in a price up to 20% higher than a comparable gasoline model. The good news, however, is that these extra costs are steadily decreasing, and most experts believe that the price of a hybrid or electric vehicle will match that of a gasoline model within the next 10 years. Some manufacturers even offer cash incentives on their hybrid models.

  1. Will buy a Hybrid car pay for itself in savings?

The financial payoff of owning a hybrid will depend on largely the vehicle, your driving habits, and the price of fuel. The savings achieved by driving a fuel efficient hybrid will increase as the price of gas increases. Additionally, driving a hybrid will yield better efficiency for city drivers, where the electric motor is used most frequently. This benefit is even more apparent with a plug-in hybrid, as a city driver may often use no gas at all. We recommended that you research the environmental policies of your local, provincial and national government, as there are often cash and tax incentives available to hybrid vehicle owners.