Are you ready for a new car? You need to find out how you’ll pay for it! Shopping for the best auto loan is just as important as shopping for the car itself.
Finding the best auto loan may prove to be more challenging than finding the best new car. Don’t let the searching process weigh you down. We’ve come up with a step-by-step guide to finding the best deal on an auto loan. When you’re looking for a good deal, remember this advice.
Step 1: Find Out Your Credit Score
Your credit history is going to play a huge role in the loans available to you. You can find out your credit score for free on AnnualCreditReport.com. The figure you get may not be exactly the same as what the lender sees, but it will be close enough to give you a reliable idea of what’s available.
Step 2: Look Around and Look Online
When you’re searching for a good car loan, look beyond the dealership and the traditional brick-and-mortar bank. You’ll find that online banks and credit unions offer lower interest rates. It’s a good idea to have your loan lined up before you actually go to the dealership. If you’re prequalified for a loan, you can essentially bring a blank check to the dealership.
Step 3: Keep the Application Process Short
Don’t take more than two weeks to apply for auto loans. Whenever you apply for a line of credit, your credit score takes a hit. Applying for several loans over a long period of time will significantly lower your credit score; it doesn’t matter whether you’re approved or not. However, if you apply for loans within a two-week period, then your score will only be hit once.
Step 4: See Past the Monthly Payment
Lenders will try to amaze you with shockingly small monthly payments. However, these low payments are meant to distract you from the longer term of the loan. You’ll end up paying more in interest over the years, leaving you driving an old car years after you could’ve paid it off. When you’re negotiating, try to talk down the length of your loan. Although you’ll have higher monthly payments, you will be paying less interest. Therefore, you will actually pay less over time.
Step 5: Know What to Look For
If you’ve done your homework, you should know the best rates that your credit score will get you. When you sit down with a lender, you should know that he’s not going to give you the rate you deserve—especially if you’re getting a loan from a car dealership. Dealerships have a history of marking up loans; in 2007, dealers marked up new car loans by 0.6%. For used cars, they increased them by 1.8%. When it’s time to sign off on a lease, be sure that the terms of your agreement have been finalized. The last thing you want is a random change a year into the loan.