Labor Day car shoppers: Line up financing first

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If your Labor Day weekend plans include a visit to a car dealership, make sure you shop around first — not just for the vehicle, but the financing as well.

September is one of the best months to buy a car, with shoppers netting an average 7.64 percent off the sticker price, according to Labor Day in particular tends to be big because the three-day holiday weekend intersects with brands' summer sales and the start of model year-end clearances, said Matt DeLorenzo, managing editor for Kelley Blue Book.

"We've been noticing a lot of rebates and sales events," he said. "In particular, we've been seeing a lot of lease deals going on."

Yet Americans are spending more on their cars, with both average transaction prices and amount financed creeping up. During the first quarter, auto loans topped $1 trillion for the first time, according to Experian. That quarter also set records for the average amount financed ($30,032), average monthly payment ($503) and average term (68 months).

The rate you'll pay to finance a car purchase varies widely, depending on factors including your credit and where you borrow. (See charts above.) Rate differences can add up to thousands of dollars over the life of the loan.

Auto manufacturers are often the best financing source, offering rates 51 percent below average, according to a new report from Among the manufacturers the site assessed, Cadillac, Ford, Hyundai, Mini, Nissan, Subaru and Toyota had the lowest financing rates.

But it helps to arrive at the dealership with alternative offers in hand, said Greg McBride, senior analyst for You might not qualify for the dealership's best offer, or the financing term might be longer or shorter than you'd prefer.

Offers from some banks, credit unions and online lenders may also give dealership rates a run for their money.

"For people with good credit, car loans at banks and credit unions alike have never been lower," said McBride. "There are a bevy of sub 2 percent offers available."

Securing financing in advance has the added advantage of helping you assess offers in relation to what you can afford, said DeLorenzo. Knowing where you stand can clarify the lease-vs.-buy decision, set a firm cap on affordability for a monthly payment and help you spot bad deals that might push you over budget or put you underwater.

"The one thing you don't want is to be surprised by anything," he said.

Labor Day weekend shoppers still have plenty of time to do their financing homework. Securing offers can be done in less than 30 minutes, McBride said.

Don't be shy about getting multiple bids. All auto loan credit checks made within a 14-day period are treated as one inquiry for credit score purposes, he said.

Wait to reveal competing financing offers until after you've negotiated the price of the vehicle itself, said DeLorenzo.

"This is my financing package, can you beat it?" he said. "Sometimes they will."