Negotiating a price is only half the battle when buying a new car. For a great deal, you’ll need an auto loan with competitive terms. If you wait until you arrive at the dealership to secure financing, your options will only include loans from lenders in their network.
The best way to increase your chances of getting favorable auto loan terms is to shop around for lenders to become prequalified. Here’s a quick guide to finding the best auto loan rates.
Check Your Credit Score
Get familiar with your credit history. Your credit score is available online. You can also obtain credit reports from credit bureaus if you want a more detailed picture of your credit health.
The borrower’s credit score should be in the mid-600s and above 700 for the best rates to qualify. Pay off existing debt, make on-time credit card payments, and avoid other credit applications to improve your credit score before applying for a loan.
Do Your Research
Finding the best auto loan requires thorough online research. Use an online car finance calculator to determine the best financing. Auto loan lender reviews can help you narrow down a list of potential companies.
Consider traditional banks, credit unions, and online lenders when shopping for auto loans. Pay close attention to the loan’s interest rate, repayment terms, required down payment, and any fees or penalties.
Examine the Total Loan Amount Rather than The Monthly Payment
To make the loan more appealing, some lenders extend the repayment period on auto loans and market the lower monthly payment. By doing so, you risk borrowing far more than you intended and paying far more in interest over the loan’s term.
Limit Loan Applications to Two Weeks
A thorough inquiry is conducted each time you apply for a loan. However, the FICO credit scoring model allows you to shop around for a car loan within a 14-day window and counts all new credit applications as a single inquiry. This is known as rate shopping and will not harm your credit score.
Some lenders also provide online prequalification tools, which allow you to view potential loan offers, payments, and interest rates without negatively impacting your credit score. You can take the process further by getting preapproved for a specific loan amount.
Compare Auto Loan Quotes
Compare pricing once you’ve completed your research and have a shortlist of preferred lenders. Getting quotes from several companies is the best way to do this. If the preapprovals you received are still valid, refer to them. Otherwise, you should resubmit your information to receive updated quotes.
Check the Fine Print
Examine the fine print after getting loan quotes. Watch out for the lender’s mandatory binding arbitration, prepayment penalties, loan processing fees, and other fees. Binding arbitration prevents you from suing the lender if something goes wrong, and prepayment penalties are fees charged if you pay off the loan early.
