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Managing to bargain down the price of a vehicle that you’re planning on purchasing is obviously great, but another important component for many is finding a great deal on an auto loan. Though some may be able to pay for a new vehicle completely upfront, most will need to take out a new car loan. Knowing how to get one with a favorable interest rest will make your purchase even more of a fantastic deal.
Keep Your Loan Applications to a Two-Week Period
Every single time that you apply for an auto loan, the creditor will run a hard inquiry on your credit report. Each hard inquiry will result in your credit score being lowered a few points. While your score will improve again in the future, you might not qualify for favorable interest rates in the short-term if your credit score is lowered temporarily. However, the good news is, if you keep your applications to a two-week period, no matter how many hard credit checks are done by creditors, it’ll only count as 1 on your credit report.
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Shop for an Auto Loan Independently
If you know that you’re planning on purchasing a vehicle soon, you should do your own research and try to shop for an auto loan ahead of time. You can check to see if you’re pre-qualified for an auto loan before you even apply. If you are pre-qualified, you can let the car dealer know about the financing rates that you have been offered in order to see if they can at least match them. If you don’t do your research ahead of time, you won’t have this leverage.
It’s recommended that you check out the rates offered by many credible online banks, many of which offer better rates than their bigger brick and mortar counterparts. Credit unions also have rates that are much lower than traditional banks on average.
Shop around before committing to anything, and make sure to read the fine print!
Focus on the Total Loan Amount
While the amount of the monthly payment is certainly important, you should focus more on what the total loan amount is. Some lenders may try to blind you with a low monthly payment number, but they make up for it by extending a number of months that you’ll have to pay, as well as the total interest. It’s better to see what the total loan amount will be with all of the interest added on.
Bump Up Your Credit Score Ahead of Time
Say you’re planning on purchasing a vehicle within the next 6 months. That gives you at least 5 months to work on improving your credit score. Even a slight increase in your credit score, depending on what it is, can result in you receiving much better rates. Make sure to pay all of your bills on time and also make sure that your credit utilization rate is below 20%. Ideally, it’d be below 10%.
Carrying large monthly balances on your credit cards every month, even if you’re always making at least the minimum payment, will hurt your credit score. You’ll be surprised at how fast it will improve if you lower your credit card balance. Most banking institutions allow you to make multiple credit card payments a month, so if you happen to make a large purchase, pay at least part of it off immediately.
Don’t Accept Conditional Financing
You should never agree to any auto loan in which the financing is “conditional.” You should have a finalized agreement made as to the interest rate, length, monthly payments, and down payment amount. You don’t want to be surprised at anything later.
Do your research ahead of time, get your ducks in order, and don’t be too quick to accept anything offered to you. Good luck!